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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

When payment is made on an existing debt, which accounts increase or decrease?

(a) Cash increases; Accounts Receivable increases.

(b) Cash decreases; Accounts Payable increases.

(c) Cash increases; Accounts Payable increases.

(d) Cash decreases; Accounts Payable decreases.

To determine

State the account which increase or decrease if payment is made on an existing debt.

Explanation

Assets: These are the resources owned and controlled by business and used to produce benefits for the company. Assets are classified on the balance sheet as current assets, non-current assets, cash and cash equivalents, property, plant, and equipment, and intangible assets

Liabilities: The claims creditors have over assets or resources of a company are referred to as liabilities. These are the debt obligations owed by company to creditors. Liabilities are classified on the balance sheet as current liabilities and long-term liabilities.

Justification for the incorrect options:

Options of (a), (b) and (c):

Cash increases; Accounts receivable increases, cash decreases; accounts payable increases. Cash decreases; accounts payable decreases are incorrect options because when payment is made for an existing debt both cash account and accounts payable account will decrease...

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