Question

Use the following image to answer the question

QUESTION:

The reduction of an obligation to a creditor requires a debit to the account for the obligation.

o True

o False

1. Use the template below to indicate how the following transactions affect the accrual basis accounting equation: a. Kissimmee, Inc. (a retail store) begins business on January 1, 2015 with a $100,000 cash contribution from the owners. b. On January 1, 2015, Kissimmee hires live employees to manage and operate the business. c. On January 1, 2015, Kissimmee prepays the monthly rent of $500 cash. d. On January 27, 2015, Kissimmee issues a 129 note payable to purchase warehouse equipment for $10,000. e. On January 10, 2015, Kissimmee purchases goods from a wholesaler for $2,500 cash, and sells the goods on the same day to a customer for S4,500 cash. f. On January 15, 2015, Kissimmee pays wages due employees in the amount of $750 cash. g. On January 20, 2015, Kissimmee pays various utility expenses in the amount of $400 cash. h. On January 25, 2015. Kissimmee purchases goods on credit from a wholesaler in the amount of $1,000. 1. On January 26, 2015, Kissimmee settles $400 of accounts payable with cash payments. j. On January 27, 2015, Kissimmee sells goods to a customer, which cost $900. for $2.000 cash. k. On January 28, 2015, Kissimmee prepays the February rent of $500 cash. 1. On Jamary 29, 2015, Kissimmee makes a credit sale of goods to a customer, which cost $700, for $200. m. On Jamiary 30, 2015, Kissimmee purchases machinery with $5,000 cash. n. On January 30, 2015. Kissimmee settles the Note Payable with interest for $10,100. 0. On January 31, 2015, Kissimmee collects $200 from previous credil sales. p. On January 31, 2015, Kissimmee makes cash payments for salaries and wages for $1,500. Transaction reference Assets Accounts Receivable Inventory Prepaid Rent Liabilitics Accounts Notes Payable Payable Shareholders' Equity Contributed Capital Revenue (+) Expenses (-) $100,000 PP&E Cash $100,000 2 b $(500) $500 $10.000 S10,000 d d e(1) e(2) f $4,500 $4,500 $2.500) $(750) $(400) $2.500 S750 S400 $1,000 $1,000 h 1 1/1) 1(2) ($400) $2,000 (S400) $2,000 ($900) $900 (S500) $500 1 $200 ($100) $200 $100 131 $5,000 72 ($70,000) ($5,000) ($70.100) $200 ($1.500) O ($200) P $1.500 Totals $85,050 $0 SO $7,000 $75.000 $600 SO $100,000 S6,700 $6,250

Answer 1

True

To have a decrease in obligation of creditors, the creditor's account need to be debited.

Check the transacton 'i' in the image. Here a cash payment is done to the creditor. The journal entry thus form as a debit to the creditor ie. accounts payable and credit to cash. Account payable in liablities decreases and Cash in assets also decreases. Account payable usually have credit balance, when a debit entry is made there is a decrease in that account.

Thus, when creditor's account or account payable is debited there is a decrease .