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If the total liabilities of a business decrease by $5000 what will be the effect on total asset? (assuming the amount of capital remain same)?

1. Remain Constant

2. Decrease by $5000

3. Increase by $5000

4. Increase by $10,000

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Question ajoutée par Mehboob Ali Laghari , Social Mobilization Team Incharge , TRDP-European Union
Date de publication: 2015/08/06
Zeeshan Dossani
par Zeeshan Dossani , Manager Audit , Aga Khan Grants & Review Board for Pakistan

Correct option is '2'

Because Total Assets - Total Liabilities = Equity

Sabir Hussain
par Sabir Hussain , Accounting Manager , Etihad Aviation Tours & Travels

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

 

Said Shaban
par Said Shaban , Accountant , Tri State Materials Testing

The correct answer is:2- Decrease by $5000

the current assets will decrease by $5000 due to the principle of double entry in financial accounting.furthermore, current assets determines the liquidity of the business to settle its debt hence the asset of $5000 was used to settle the liability

Sayed Rubab Sayed
par Sayed Rubab Sayed , Finance Officer , The Next

Definitely Decrease by $5000...........

Greg  Bansiwar
par Greg Bansiwar , Article Trainee , PRA Associates

Decrease by5000$ as in a double entry system, assets reduce with reduction in liabilities.

Shahbaz Hayder
par Shahbaz Hayder , Group Head of Finance , Sharif Group of Companies

Option2 is the right answer.

ABDUL NAVAS KOVVAL CHEMBILALY
par ABDUL NAVAS KOVVAL CHEMBILALY , Accountant , Landmark Group, Qatar

Both are B/S item, which means if the liabilities reducing asset will automatically decrease.

2. Decrease by $5000 

Imdad Hussain Rajput
par Imdad Hussain Rajput , Assistant Sales Manager , Forego

Decrease by $6000............

Mustafa Haider
par Mustafa Haider , Assistant Manager Accounts , Kamal Hosiery Mill

TOTAL ASSETS WILL REMAIN CONSTANT...HOWEVER IT WILL EFFECT EQUITY..EQUITY WILL INCREASE BY $5000

Utilisateur supprimé
par Utilisateur supprimé

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.

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