How paying a creditor on account affects the accounting equation?

Accounting Dec 16, 2020

Expert Solution

The basic accounting equation is Assets = Liabilities + Equity

Paying a creditor on account would result to a decrease in the Asset and Liability while leaving Equity the same in the accounting equation. The payment to the creditor would result to a decrease (credit) in the Cash account which is an asset, and a decrease (debit) in Accounts Payable which is a liability. The proforma journal entries for this transactions is as follows:

Account	Debit	Credit
Accounts Payable	XXX
Cash		XXX

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