Answer:
Step-by-step explanation:
When cash is paid to creditors we are reducing our liability portion of creditors by an amount equal to the reduction in the assets column in cash.
i.e. entry would be
Creditors Dr. xxxx
To cash XXXX
Thus liability would be reduced by an amount equal to the decrease in asset value thus keeping capital in tact
Accounting equation would be
Original assets - xxxx = Original liability -xxxx +capital
