If Mr. Ajasin paid his creditors ₦5000 out of ₦20 000 owed, what would be the effect of this transaction on the accounting equation?

Assessment: JAMB UTME - Principles of Accounts - 2007 Subject: Financial Accounting

Question 1 Report

If Mr. Ajasin paid his creditors ₦5000 out of ₦20 000 owed, what would be the effect of this transaction on the accounting equation?
Answer Details
When Mr. Ajasin paid his creditors ₦5000 out of the total amount owed ₦20,000, it means that the company's liabilities decreased by ₦5000 since they were able to pay off some of their debts. This transaction would have no effect on the total assets since the money used to pay off the creditors was already accounted for as a liability. Thus, there is no change in the total assets of the company. Therefore, the correct answer is: "A decrease in the total liabilities by ₦5000".
Read lesson note on The Accounting Equation And Double Entry Principle (WAEC)
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