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WAEC Financial Accounting 2001 Question 21

Question 21

Accounting Equation

What is the effect on a firm for making a payment of N10,000 to a creditor? Its liabilities

  1. A.decrease and its assets decrease
  2. B.increase and its assets decrease
  3. C.decrease and its assets increase
  4. D.increase and its assets increase.
Show the answer and explanation

Answer: A (decrease and its assets decrease)

Explanation

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