Final answer:
When accounts payable increases, you credit the accounts payable account to show the increase in liability. When accounts payable decreases, you debit the accounts payable account to reduce the liability. These actions are recorded in a T-account as part of a company's financial transactions.
Step-by-step explanation:
When accounts payable increases, it implies that a company is purchasing goods or services on credit which increases its liabilities. To record this in a T-account, you would credit the accounts payable account to show the increase in liability. Conversely, when accounts payable decreases, it indicates that the company has paid off some of its debts, which reduces its liabilities. In this case, you would debit the accounts payable account to reflect the decrease in the amount owed.
For example:
- To record an increase in accounts payable, one would: Debit an expense account / Credit accounts payable.
- To record a decrease in accounts payable, one would: Debit accounts payable / Credit cash or bank.
Understanding the T-account concept, where assets equal liabilities plus net worth, helps in accurately recording transactions in a company's ledger. A healthy business shows positive net worth, while a bankrupt firm has negative net worth.