Final answer:
The payment JackTrade Co. made to its supplier decreases both the cash asset and accounts payable liability in the accounting equation, with no impact on equity. The balance sheet reflects a reduction in both liquidity and obligations, but the company's overall net worth remains unchanged.
Step-by-step explanation:
The accounting equation, which is Assets = Liabilities + Equity, represents the relationship between a company's resources and its financial obligations and ownership interests. On October 4, when JackTrade Co. paid off the balance it owed its supplier for supplies that were purchased last month, the transaction has a direct effect on the company's accounting equation. Here's how:
- Cash, an asset account, decreases because they have used cash to pay off the debt.
- Accounts Payable, a liability account, decreases because they have settled an obligation.
The overall effect on the accounting equation is a decrease in both assets and liabilities by the same amount, with no impact on the equity. This transaction doesn't increase or decrease the company's net worth; instead, it shifts the composition of the balance sheet by reducing both cash and the corresponding liability.
The provided references about the money supply and bank balance sheets do not directly relate to the transaction in question. Nevertheless, they illustrate principles of how banking transactions can affect broader economic factors such as the money supply. But for JackTrade Co.'s situation, we focus solely on the immediate changes to their balance sheet rather than broader economic implications.