How Does Paying a Liability in Cash Affect the Accounting

question 193

Multiple Choice

How does paying a liability in cash affect the accounting equation?

• A) assets increase; liabilities decrease
• B) assets increase; liabilities increase
• C) assets decrease; liabilities decrease
• D) liabilities decrease; stockholders' equity increases

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Definitions:

Negligence

A failure to behave with the level of care that a reasonably prudent person would have exercised under the same circumstances, resulting in harm or injury.

Tort Liability

Legal responsibility arising from civil wrongs not arising out of contractual obligations, resulting in harm or injury to another.

Principal

The main party to a transaction, agreement, or contract, often responsible for fulfilling the obligations set within.

Third Persons

Individuals who are not a direct party to a legal agreement or transaction but may be affected by it or have certain rights or obligations related to it.