A Company Pays $5,000 to Its Creditor

question 120

Multiple Choice

A company pays $5,000 to its creditor. This would

• A) increase both the company's assets and liabilities.
• B) decrease both the company's assets and liabilities.
• C) decrease the company's liquidity.
• D) increase the company's owner's equity.

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Definitions:

Depreciation

An expense recorded to reduce the book value of an asset due to its usage and wear and tear over time, reflecting its decreasing value.

Accounts Receivable

Money that clients are required to pay to a company for goods or services received but for which payment has not yet been made.

Operating Section

A component of the income statement where the primary revenues and expenses of a company's core business activities are detailed.

Interest Expense

The cost incurred by an entity for borrowed funds over a particular period of time, typically expressed as a rate of the principal.