When a business pays one of its creditors by cheque, then the impact on their assets and / or liabilities is:
Select ONE answer:
- Effect upon Assets – Decrease bank / Effect upon Liabilities – Decrease creditors
- Effect upon Assets – Increase bank / Effect upon Liabilities – Increase creditors
- Effect upon Assets – Decrease bank / Effect upon Liabilities – Increase creditors
- None of the above
Show your workings to arrive at your answer, and explain and justify your reasons:
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This is multiple choice question is suitable for Accounting KS5 classes.
The answer is 1 – The business has less money in its bank account because it has just paid some money to one of its creditors & it also owes less to its creditors because the money it paid was used to settle a debt which it previously owed.
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