QuestionSaddleback Company paid off \$39,000 in accounts payable. What are the effects on the accounting equation?
Studdy Solution
STEP 1
Assumptions1. The company paid off $39,000 of its accounts payable in cash.
. The accounting equation is Assets = Liabilities + Equity.
3. The accounts payable is a liability.
4. Cash is an asset.
STEP 2
First, we need to understand that paying off accounts payable in cash will decrease both the company's assets and liabilities by the same amount.
STEP 3
We can represent the decrease in assets (cash) and liabilities (accounts payable) as follows
STEP 4
Now, we can apply these changes to the accounting equation. The initial accounting equation is
STEP 5
After the payment of the accounts payable, the accounting equation becomes
STEP 6
Substitute the values of and into the equation
STEP 7
implify the equation
STEP 8
We can see that the accounting equation remains balanced. The decrease in assets (cash) is equal to the decrease in liabilities (accounts payable), so there is no effect on the equity.
The effects of this transaction on the accounting equation are a decrease in assets and liabilities by $39,000, with no change in equity.
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