CA Foundation · Accounting · Accounting Process
Which of the following transactions will decrease both total assets and total liabilities by the same amount?
Paying a creditor in cash reduces both total assets and total liabilities by the same amount, because cash falls and the creditor balance falls equally. Other options either increase both, leave totals unchanged, or reduce assets and capital instead.
- APurchased machinery on credit
- BPaid a creditor in cashCorrect
- CReceived cash from a debtor
- DOwner withdrew cash for personal use
Explanation
Paying a creditor reduces cash (an asset) and creditors (a liability) equally. Machinery on credit raises both. Cash from a debtor only swaps one asset for another. Drawings reduce assets and capital, not liabilities.
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