Question

If a company receives $20,000 cash from its customers on account and uses the cash to pay $20,000 to its suppliers on accounts, the net result is that:

A. assets would decrease by $20,000 and liabilities would decrease by $20,000.
B. liabilities would decrease by $20,000 while stockholders' equity would increase by $20,000.
C. liabilities would decrease by $20,000 and stockholders' equity would decrease by $20,000.
D. assets would increase by $20,000 while liabilities would decrease by $20,000.

Answer 1

A. assets would decrease by $20,000 and liabilities would decrease by $20,000. The net result is that assets would decrease by $20,000 and liabilities would decrease by $20,000.

Step-by-step explanation:

To determine the net result of receiving $20,000 cash from customers and using it to pay $20,000 to suppliers on account, we need to analyze the impact on the company's assets, liabilities, and stockholders' equity. In this case, both the cash received and the cash paid are recorded as changes in assets. The cash received increases the assets, while the cash paid decreases the assets. Since both the cash received and cash paid are done on account, there is no immediate impact on liabilities or stockholders' equity.

Therefore, the correct answer is A. Assets would decrease by $20,000 and liabilities would decrease by $20,000.