Consider the balance sheet scenario where the business uses $10,000 of cash to pay for suppliers that were ordered on credit terms and have already been received and recorded on the balance sheet. Which statement reflects the resulting balance sheet change?

• A. Cash decreases by $10,000; Accounts payable decreases by $10,000
• B. Cash increases by $10,000; Accounts payable increases by $10,000
• C. Cash decreases by $10,000; Inventories increase by $10,000
• D. Cash decreases by $10,000; Accounts payable increases by $10,000

Answer: (C)

When you pay cash to settle a liability that was created when the goods were received on credit terms, you reduce cash and reduce the liability. The inventory was already recorded when the goods arrived, so paying the supplier does not create a new asset. In this scenario, cash decreases by 10,000 and accounts payable decreases by 10,000, while inventory remains unchanged. The result reflects settling the obligation rather than adding new assets.