What is the effect of paying off current liabilities?

Paying off current liabilities primarily results in a reduction of those liabilities and affects the overall financial position of a company. When a business pays off its current liabilities, such as accounts payable or short-term loans, it uses its current assets—usually cash—to do so. This transaction reduces both current assets (because cash is spent) and current liabilities (as these debts are paid off).

Therefore, the correct choice captures the dual effect of this action, noting that while current liabilities decrease, there is also a corresponding decrease in current assets, as the assets used to pay off those liabilities are no longer available.