What happens to the Checking account and Accounts Payable when a bill for inventory is paid?

• A. The Checking account is debited and Accounts Payable is debited
• B. The Checking account is credited and Accounts Payable is debited
• C. The Checking account is credited and Accounts Payable is credited
• D. The Checking account is credited and Accounts Payable is decreased with a debit

Answer: (D)

When a bill for inventory is paid, it affects both the Checking account and Accounts Payable in specific ways according to the principles of double-entry bookkeeping. The Checking account represents the company's cash balance, and Accounts Payable is a liability that represents the amount owed to suppliers or vendors for goods or services received but not yet paid for.

In the correct scenario, when the bill is paid, the company uses its cash (from the Checking account) to settle the outstanding liability (Accounts Payable). This transaction is recorded as a decrease in the Checking account because cash is flowing out of the company, and it results in a corresponding decrease in Accounts Payable since the company is fulfilling its obligation to pay for the inventory.

Therefore, the Checking account is credited to reflect the reduction in cash, while Accounts Payable is decreased with a debit. This dual action reflects the essential accounting equation, where an asset (cash) decreases, and a liability (debt owed) also decreases, maintaining the balance in the books.

This transaction shows how payments for inventory impact financial statements and reflects the company’s cash management and liability settlement processes.