Adventis Financial Modeling Certification (FMC) Level 1 Practice Test

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Question: 1 / 400

After paying a bill, how do liabilities on the balance sheet change?

Liabilities increase

Liabilities remain unchanged

Liabilities decrease

When a bill is paid, the corresponding liability recorded on the balance sheet decreases. This occurs because paying a bill means that the obligation to pay that amount has been fulfilled, reducing the outstanding liabilities. For instance, if a company has accounts payable for services received and that amount is paid, the accounts payable liability declines by the amount paid.

The balance sheet reflects this change: cash (or bank account) decreases as the payment is made, and the particular liability decreases by the same amount, resulting in an overall reduction in total liabilities. This fundamental relationship between paying a bill and a decrease in liabilities illustrates the flow of financial transactions and underscores the importance of maintaining accurate financial records.

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Liabilities fluctuate

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