Asked by Veronica Lovtsova on Apr 27, 2024
Verified
Gomez Service Company paid its first installment on a note payable of $2,000. How will this transaction affect the accounting equation?
A) increase in liabilities (Notes Payable) and decrease in assets (Cash)
B) decrease in assets (Cash) and decrease in owner's equity (Note Payable Expense)
C) decrease in assets (Cash) and decrease in assets (Notes Receivable)
D) decrease in assets (Cash) and decrease in liabilities (Notes Payable)
Note Payable
A written promise to pay a specified amount of money, typically with interest, at a future date.
Installment
A method of paying for goods or services or repaying a loan through regular, scheduled payments.
Accounting Equation
The basic formula of double-entry accounting: Assets equal Liabilities plus Equity.
- Evaluate the effects of cash transactions on the accounting equation and financial statements.
Verified Answer
FA
Fahad AlotaibiMay 02, 2024
Final Answer :
D
Explanation :
Paying off a portion of a note payable decreases the company's cash (an asset) and also decreases the amount of the company's liabilities (notes payable), as the obligation to pay back the loan is partially fulfilled.
Learning Objectives
- Evaluate the effects of cash transactions on the accounting equation and financial statements.
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