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.

Analyze the effects of unexpected inflation on loan agreements.

Understand the factors that influence changes in the Consumer Price Index (CPI) and how they impact the cost of living.

Comprehend the difference between the GDP deflator and the CPI in measuring inflation.

Understand the application of CPI to convert past salaries or prices to their present-day equivalents.

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Definitions:

Monopolistic Competition

A market structure characterized by many firms selling differentiated products, allowing for some degree of market power.

Close Substitutes

Close substitutes are products or services that can serve as nearly identical alternatives for consumers, making them likely to switch if the price or quality of one changes.

MC = MR

A condition where marginal cost equals marginal revenue, often used to determine the profit-maximizing level of output in economic theory.

Monopolistically Competitive Industry

A market structure in which many firms sell products that are similar but not identical, allowing for competition based on quality, price, and marketing.