Saddleback Company paid off $42,000 of its accounts payable in cash

Accounting Dec 16, 2020

Saddleback Company paid off $42,000 of its accounts payable in cash.

What would be the effects of this transaction on the accounting equation?

Expert Solution

The transaction will impact the cash accounts (which is an asset) and Accounts Payable (which is a liability)
The cash asset will decrease because cash is spent to settle the liability
The accounts payable liability also decreases with the payment.
The effect on the accounting equation is:

Assets	$42,000 decrease
Equity	No Effect
Liabilities	$42,000 decrease

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