What happens when a cash disbursement in payment of accounts payable is recorded?

When a cash disbursement is made to settle accounts payable, the accounts payable liability account is decreased. This is because accounts payable represent obligations to pay creditors for purchases made on credit. When a payment is made, it reduces the amount that the company owes, thus decreasing the accounts payable liability.

At the same time, cash, which is an asset, is also reduced because the company is using its cash resources to pay off this obligation. This action maintains the balance in the accounting equation, which states that assets equal liabilities plus equity. The decrease in liabilities reflects the company’s improved financial position as it fulfills its obligations, demonstrating responsible financial management.

The other options provided do not accurately describe the transaction. For instance, cash assets are decreased instead of increased, accounts payable cannot both increase and decrease simultaneously, and there is no direct impact on the inventory asset account as a direct result of this transaction.