In a journal entry, which account is debited when a company pays off a liability

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Question: In a journal entry, which account is debited when a company pays off a liability?

Options:

Correct Answer: Cash

Solution:

When a company pays off a liability, the Cash account is credited, and the liability account is debited to reduce the obligation.

In a journal entry, which account is debited when a company pays off a liability?

In a journal entry, which account is debited when a company pays off a liability?

Step 1: Identify the liability that the company is paying off, such as a loan or accounts payable.
Step 2: Understand that paying off a liability means the company is reducing what it owes.
Step 3: In accounting, to reduce a liability, you need to debit the liability account.
Step 4: Since the company is using cash to pay off the liability, you also need to credit the Cash account.
Step 5: The journal entry will show the liability account debited and the Cash account credited.

Debits and Credits – Understanding how debits and credits affect accounts in double-entry accounting.
Liabilities – Recognizing how liabilities are recorded and settled in financial transactions.
Cash Management – Understanding the impact of cash transactions on the company's financial position.