Accounting for IGCSE & O level - The Fundamentals Of Accounting (Section 43 - No. 26)

What is the effect on the accounting equation when a company repays a loan?

Assets increase, Liabilities increase, Equity stays the same

Assets increase, Liabilities decrease, Equity stays the same

Assets decrease, Liabilities increase, Equity decreases

Assets decrease, Liabilities decrease, Equity stays the same

Paying back the loan decreases cash (asset) and reduces the amount owed (liability).