When applying a Vendor Credit to a bill, which accounts are affected?

• A. Accounts Payable increases and the bill amount increases.
• B. Cash increases.
• C. Accounts Payable decreases and the bill amount is reduced.
• D. Revenue increases.

Answer: (C)

When you apply a vendor credit to a bill, you’re offsetting what you owe to that vendor. This lowers the liability (Accounts Payable) and reduces the outstanding amount on the bill itself. No cash is involved at the moment of applying the credit, since you’re not paying money yet, and you’re not generating revenue. So the correct effect is a decrease in Accounts Payable and a reduced bill balance.