Final answer:
Paying cash to reduce a banknote's principal decreases both assets (cash) and liabilities (loan principal) on a company's balance sheet. It does not directly affect the retained earnings or common stock accounts.
Step-by-step explanation:
When Hansen Enterprises paid cash to reduce the principal on a banknote, it affected its balance sheet by decreasing two specific accounts. The payment of the banknote is a transaction that decreased the company's assets, specifically its cash account. Additionally, it also decreased the company's liabilities, as the outstanding principal on the banknote represents an obligation that the company is now partially relieving.
Retained earnings and common stock, on the other hand, are components of the shareholders' equity section of the balance sheet and would typically not be directly affected by the transaction of paying down a loan principal with cash.