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The company pays its creditors by cheque. What is the effect on assets and liabilities
- a)Increase Bank and Reduce Capital
- b)Reduce Bank and Reduce Liability
- c)Increase Bank and Increase Capital
- d)Reduce Bank and Increase Capital
Correct answer is option 'B'. Can you explain this answer?
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The company pays its creditors by cheque. What is the effect on assets...
Effect of Payment to Creditors on Assets and Liabilities
When a company pays its creditors by cheque, it has an effect on the assets and liabilities of the company. Let us understand the effect of this transaction on the company's balance sheet.
Effect on Assets and Liabilities
The effect of payment to creditors on assets and liabilities is as follows:
Reduced Bank Balance: The payment made to the creditors will reduce the bank balance of the company. The cash outflow will result in a decrease in the bank balance.
Reduced Liability: When the company pays its creditors, it reduces its liability. The outstanding amount owed to the creditor is reduced, resulting in a decrease in the liability.
Therefore, the correct answer is option 'B': Reduce Bank and Reduce Liability.
Conclusion
When a company pays its creditors by cheque, it reduces its bank balance and liability. This transaction is recorded in the balance sheet, which shows the financial position of the company at a particular point in time. A reduction in the bank balance and liability indicates that the company is managing its finances effectively.
When a company pays its creditors by cheque, it has an effect on the assets and liabilities of the company. Let us understand the effect of this transaction on the company's balance sheet.
Effect on Assets and Liabilities
The effect of payment to creditors on assets and liabilities is as follows:
Reduced Bank Balance: The payment made to the creditors will reduce the bank balance of the company. The cash outflow will result in a decrease in the bank balance.
Reduced Liability: When the company pays its creditors, it reduces its liability. The outstanding amount owed to the creditor is reduced, resulting in a decrease in the liability.
Therefore, the correct answer is option 'B': Reduce Bank and Reduce Liability.
Conclusion
When a company pays its creditors by cheque, it reduces its bank balance and liability. This transaction is recorded in the balance sheet, which shows the financial position of the company at a particular point in time. A reduction in the bank balance and liability indicates that the company is managing its finances effectively.
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Community Answer
The company pays its creditors by cheque. What is the effect on assets...
Bcoz when we pay something from cheque then cash will be decrease from our bank and as we know that creditor is liability so when we pay to creditor automatically our liability will decrease.
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The company pays its creditors by cheque. What is the effect on assets and liabilitiesa)Increase Bank and Reduce Capitalb)Reduce Bank and Reduce Liabilityc)Increase Bank and Increase Capitald)Reduce Bank and Increase CapitalCorrect answer is option 'B'. Can you explain this answer?
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