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WAEC Financial Accounting 1996 Question 28

Question 28

Accounting Equation

A payment of N150 to a creditor is

  1. A.an increase in assets only
  2. B.a reduction of assets only
  3. C.a reduction in assets and liabilities
  4. D.an increase in assets and liabilities
  5. E.a reduction in the bank account.
Show the answer and explanation

Answer: C (a reduction in assets and liabilities)

Explanation

Paying a creditor reduces cash (an asset) and reduces the amount owed (a liability).