When settling accounts payable with cash, which statement best describes the effect on the two accounts involved?

When settling accounts payable with cash, which statement best describes the effect on the two accounts involved?

• A. Cash decreases; Accounts payable decreases.
• B. Cash increases; Accounts payable decreases.
• C. Cash decreases; Revenue increases.
• D. Cash increases; Revenue decreases.

Answer: (A)

When you settle a liability with cash, you reduce both sides of the transaction: cash and accounts payable. Paying cash means cash leaves the company, so the cash balance decreases. At the same time, you’re eliminating part or all of what you owe, so the accounts payable balance also decreases. In double-entry terms, you’d debit accounts payable (to reduce the liability) and credit cash (to reflect the cash outflow). That's why the best description is cash decreases and accounts payable decreases. The other options would show cash increasing or involve revenue, which don’t apply to paying a supplier.

When you settle a liability with cash, you reduce both sides of the transaction: cash and accounts payable. Paying cash means cash leaves the company, so the cash balance decreases. At the same time, you’re eliminating part or all of what you owe, so the accounts payable balance also decreases. In double-entry terms, you’d debit accounts payable (to reduce the liability) and credit cash (to reflect the cash outflow). That's why the best description is cash decreases and accounts payable decreases. The other options would show cash increasing or involve revenue, which don’t apply to paying a supplier.