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ACCA Applied Knowledge · Financial Accounting · General ledger accounts and journal entries

Which statement about the accounting equation and double entry is correct?

Paying a payable from the bank reduces both assets and liabilities by the same amount, so the accounting equation stays in balance. Collecting from receivables only swaps one asset for another, and depreciation reduces assets and equity, not liabilities.

  1. APaying a payable from the bank reduces both assets and liabilities, leaving the equation in balanceCorrect
  2. BReceiving cash from a receivable increases total assets
  3. CCharging depreciation increases liabilities
  4. DIssuing shares for cash reduces equity

Explanation

Paying a payable debits liabilities and credits bank, so assets and liabilities both fall by the same amount. Cash from a receivable swaps one asset for another, so total assets are unchanged. Depreciation reduces assets and equity. Issuing shares increases equity.

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