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:

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs.

Price

The amount of money expected, required, or given in payment for something.

TVC

Total Variable Cost (TVC) refers to the sum of all costs that vary with the level of output or production in a company.

Maximizing Profits

The process of optimizing the difference between revenue and costs to achieve the highest possible profit.