Question

Last month, Price Company purchased supplies on account, $5,000. Today, Price Company pays the amount that is owed.

Required: What is the effect of this transaction on individual asset accounts, individual liability accounts, the Capital Stock account, and the Retained Earnings account?

Check all that apply.

An asset account increases. An asset account decreases.

A liability account increases. A liability account decreases.

Capital Stock increases. Capital Stock decreases.

Retained Earnings increase. Retained Earnings decrease.

Answer 1

Asset Account is decreased.

Liability Account is also decreased.

No effects on Capital Stock.

No effects on Retained Earnings.

Step-by-step explanation:

Asset Account is decreased by $5000 because Cash is paid for the purchases made on account last month.

Liability Account is decreased by $5000 because accounts payable for the purchases made In the last month is now paid.

This transaction will have no effects on Capital Stock Account and Retained Earnings Account.