Final answer:
Paying $3700 on an account decreases both an asset (cash) and a liability (the owed amount) by that same amount. This reflects the T-account principle that assets must always balance with liabilities plus net worth.
Step-by-step explanation:
When Tyler paid $3700 on account to the company from which equipment was purchased on credit, this transaction would decrease one asset and decrease liabilities. This is because paying off a portion of the debt reduces the amount owed (liability) and simultaneously reduces the company’s cash on hand (an asset).
According to accounting principles and the T-account framework, the assets and liabilities of a firm must always balance. If an asset such as cash decreases because it has been used to pay a liability, the liability must decrease by the same amount, maintaining the balance. It is because that cash can no longer be considered an available resource, and the obligation to the creditor has been partially fulfilled.
Net worth, included on the liabilities side, does not change due to this transaction because it is defined as total assets minus total liabilities and this transaction reduces both by the same amount.The transaction of Tyler paying $3700 on account to the company from which equipment was purchased on credit would result in option 4) Decrease asset and decrease liabilities.When Tyler pays on account, it reduces the amount owed on the liabilities side, decreasing the liabilities. And since Tyler paid with cash, it also decreases the cash asset.Therefore, paying on account decreases both liability and asset, resulting in decrease asset and decrease liabilities.