Paid $12,000 cash for account previously owed to cleaning equipment suppliers.

Question

BlackTom AI · Accepted Answer

Question restatement: The scenario describes paying $12,000 in cash to settle an amount owed to cleaning equipment suppliers (accounts payable).
Option 1: 'Dr. Accounts Payable      12,000        Cr. Cash      12,000' This entry decreases the liability (Accounts Payable) and decreases the asset (Cash) by the same amount, which is the typical double-entry for paying off a supplier invoice.
Option 2: 'Dr. Accounts Receivable     12,000        Cr. Cash      12,000' This would record a collection from a customer, not a payment to a supplier. It incorrectly affects Accounts Receivable, which is not involved in this transaction.
Option 3: 'Dr. Cash      12,000        Cr. Accounts Payable      12,000' This reverses the normal effect: it would increase Cash instead of decreasing it while also decreasing a liability, which does not reflect paying off what you owe and would violate the principle that cash should decrease when you pay a liability.
Option 4: 'None of the above' This option would only be correct if none of the entries matched the transaction; however, Option 1 accurately reflects paying a liability with cash, making this option inappropriate.
In summary, the transaction is a reduction of both a liability (Accounts Payable) and an asset (Cash) by the same amount, which aligns with standard accounting for paying on account. The other options misstate the involved accounts or the direction of the effects on assets and liabilities.

Paid $12,000 cash for account previously owed to cleaning equipment suppliers.

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