If an Entity Pays Off an Amount Owed to a Supplier

question 2

Multiple Choice

If an entity pays off an amount owed to a supplier, what is the effect on the accounting equation?

• A)Assets and liabilities both increase.
• B)Assets and liabilities both decrease.
• C)Assets and owners' equity both decrease
• D)There is no effect on the accounting equation.

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Definitions:

Economic Profit

The difference between a firm's total revenues and its total costs, including both explicit and implicit costs.

Price-Taker Market

A price-taker market is one in which individual buyers and sellers have no control over the price of a product and must accept the prevailing market price.

Per-Unit Production Cost

The total expense involved in producing one unit of a product, incorporating both fixed and variable costs.

Economic Profit

A measure of profitability calculated as the revenue minus all costs, illustrating surplus beyond the break-even point.