Question

Martin Supply Co. paid $350 cash to a materials supplier that it owed from the previous month. What is the effect of the cash payment on the accounts of the company?

Answer 1

Paying $350 cash to a materials supplier reduces Martin Supply Co.'s cash account and accounts payable by the same amount, resulting in a decrease in both total assets and total liabilities on the balance sheet with no immediate impact on equity.

Step-by-step explanation:

When Martin Supply Co. paid $350 cash to a materials supplier that it owed from the previous month, there are two immediate effects on the company's accounts:

• Decrease in Cash account: The cash account decreases by $350 as the payment is made.
• Decrease in Accounts Payable: The accounts payable, which represents the amount owed to suppliers, also decreases by $350, reflecting the payment of the debt.

The overall effect on the company's balance sheet is that total assets decrease due to the reduction in cash, while total liabilities also decrease as the accounts payable is reduced. There is no immediate effect on the company's equity, as this transaction simply shifts amounts between accounts on the balance sheet.