Table of contents

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1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

1. Introduction to Accounting

Fundamental Accounting Equation

Financial Accounting

1. Introduction to Accounting

Fundamental Accounting Equation

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Multiple Choice

When an employee takes vacation time off and the company recognizes vacation pay as an accrued expense, what is the impact on the fundamental accounting equation ($\text{Assets} = \text{Liabilities} + \text{Equity}$)?

Liabilities increase and equity decreases; assets remain unchanged.

Liabilities increase and assets remain unchanged; equity remains unchanged.

Assets decrease and liabilities decrease; equity remains unchanged.

Liabilities increase and assets decrease; equity remains unchanged.

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Verified step by step guidance

Step 1: Begin by understanding the fundamental accounting equation: Assets = Liabilities + Equity. This equation must always remain balanced.

Step 2: Recognize that vacation pay is an accrued expense. Accrued expenses are liabilities because they represent obligations the company owes but has not yet paid.

Step 3: When the company recognizes vacation pay as an accrued expense, it increases liabilities since the company now owes the employee for the vacation pay.

Step 4: Analyze the impact on assets. In this scenario, assets remain unchanged because no cash or other asset is immediately used or reduced when the liability is recorded.

Step 5: Consider equity. Equity remains unchanged because the recognition of accrued vacation pay does not directly affect the owner's investment or retained earnings at this point.