Final answer:
The statement about accounts payable and cash is true. Payment of a liability reduces accounts payable and cash assets simultaneously, affecting the balance sheet. This is tracked using T-accounts where total assets equal liabilities plus net worth.
Step-by-step explanation:
The statement that 'accounts payable, a liability, will be reduced because an amount owing to a supplier is being paid and cash, an asset, will also be reduced' is true. Accounts payable represents the liabilities a company has and decreases when bills or debts are paid off.
In the same transaction, cash, an asset representing the firm's liquid funds available for use, decreases as well as it is used to pay off the liability. This is reflected on a company's balance sheet, which lists its assets and liabilities, including bank deposits and loans.
In the context of a T-account, payment activities would be represented on two sides: the left side for assets, and the right side for liabilities and net worth. The assets on the left would decrease due to cash disbursement, whereas the liabilities on the right would decrease as the accounts payable is satisfied.
The underlying principle here is that a company's total assets should always be equal to the sum of its liabilities and net worth. A healthy business should reflect a positive net worth, while a negative net worth is usually an indicator of a struggling or bankrupt firm.