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1. Remain Constant
2. Decrease by $5000
3. Increase by $5000
4. Increase by $10,000
Correct option is '2'
Because Total Assets - Total Liabilities = Equity
Payments of liabilities bring decrease in assets especially current assets.
According to Debit & Credit rules:
Decrease in Liabilities by $5000 will be recorded on Credit side & the payment will decrease current assets by the same amount of money.
Ans: 2. Decrease by $5000 in assets
The correct answer is:2- Decrease by $5000
Definitely Decrease by $5000...........
Decrease by5000$ as in a double entry system, assets reduce with reduction in liabilities.
Option2 is the right answer.
Both are B/S item, which means if the liabilities reducing asset will automatically decrease.
2. Decrease by $5000
Decrease by $6000............
TOTAL ASSETS WILL REMAIN CONSTANT...HOWEVER IT WILL EFFECT EQUITY..EQUITY WILL INCREASE BY $5000
2. Decrease by $5,000
Following the accounting equation principles Assets = Capital + Liability
For example If Capital is $20,000 and Liabilities is $10,000 then Asset will be $30,000
Should liabilities decrease by $5,000 which may be due to payment by cash or cheque which forms part of a company assets, then Assets will be $25,000 (20,000 +5,000). Asset has reduced by the same margin of reduction in liabilities.
