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The company repays the bank that had lent money to the company. OWNER`S EQUITY?

1. Increases

2. Decreases

3. No Effect

Accounting Financial Reporting Accounting and Finance
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Question added by Imdad Hussain Rajput , Assistant Sales Manager , Forego
Date Posted: 2015/08/01
Upvote (0) Views (6) Followers (3) Answers (3) Report Question
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Shahbaz Hayder
by Shahbaz Hayder , Group Head of Finance , Sharif Group of Companies

Option3 is the right answer.

Mehboob Ali Laghari
by Mehboob Ali Laghari , Social Mobilization Team Incharge , TRDP-European Union

3................ Should be the right answer

Michael Lagunday
by Michael Lagunday , Accountant , Dubai Camel Racing Club

My answer is3. No Effect.

 

When the company repays its debt to the bank, there is no effect with the owner’s equity. The entry in making the payment is debit to Loans and credit to Cash. However, most loans have interest in which could decrease owner’s equity.

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