When payment is made to a creditor, what account is credited?

When payment is made to a creditor, what account is credited?

• A. Cash
• B. Purchases
• C. Accounts Payable
• D. Sales

Answer: (C)

When a payment is made to a creditor, it reflects a reduction in what the company owes to that creditor, which is recorded in the Accounts Payable account. This account is categorized as a liability, representing amounts that the entity is obligated to pay to its creditors in the short term. Crediting the Accounts Payable account decreases its balance, indicating that the company's obligations have been reduced due to the payment made. This transaction typically also involves a corresponding debit to another account, most commonly Cash, to reflect the outflow of funds used to settle the debt. Therefore, the correct understanding of this transaction is that the creditor is paid by decreasing the liability listed under Accounts Payable.

When a payment is made to a creditor, it reflects a reduction in what the company owes to that creditor, which is recorded in the Accounts Payable account. This account is categorized as a liability, representing amounts that the entity is obligated to pay to its creditors in the short term.

Crediting the Accounts Payable account decreases its balance, indicating that the company's obligations have been reduced due to the payment made. This transaction typically also involves a corresponding debit to another account, most commonly Cash, to reflect the outflow of funds used to settle the debt. Therefore, the correct understanding of this transaction is that the creditor is paid by decreasing the liability listed under Accounts Payable.