The effect of payment of a liability is that it ____
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Correct Answer: Option D
Explanation:
When a liability is paid, the business is settling a debt. This payment usually involves giving out cash in hand/cash at bank (an asset) to eliminate or reduce the liability.
For example:
If a company pays ₦50,000 to settle a debt it owes a supplier:
Cash in hand/cash at bank (Asset) decreases by ₦50,000
Accounts Payable (Liability) decreases by ₦50,000
So, both assets and liabilities go down.
When a liability is paid, the business is settling a debt. This payment usually involves giving out cash in hand/cash at bank (an asset) to eliminate or reduce the liability.
For example:
If a company pays ₦50,000 to settle a debt it owes a supplier:
Cash in hand/cash at bank (Asset) decreases by ₦50,000
Accounts Payable (Liability) decreases by ₦50,000
So, both assets and liabilities go down.