Multiple Choice
In the context of managerial accounting, wages, material costs, and taxes are examples of:
113
views
3. Accrual Accounting Concepts
Adjusting Entries: Accrued Expenses
Multiple Choice
In adjusting entries, accrued expenses affect which balance sheet accounts?
A
Increase assets (e.g., cash) and increase equity (via increased retained earnings).
B
Increase liabilities (e.g., expenses payable) and decrease equity (via reduced retained earnings).
C
Affect only equity accounts and do not affect assets or liabilities.
D
Decrease liabilities and increase assets (e.g., prepaid expenses).
Verified step by step guidance1
Understand that accrued expenses are expenses that have been incurred but not yet paid by the end of the accounting period.
Recognize that accrued expenses create a liability because the company owes money for these expenses, even though payment has not been made yet.
Identify the balance sheet accounts affected: accrued expenses increase liabilities (such as 'expenses payable').
Know that expenses reduce net income, which in turn reduces retained earnings, a component of equity.
Therefore, the adjusting entry for accrued expenses increases liabilities and decreases equity (via reduced retained earnings), without affecting assets.
Related Videos
Related Practice
