Multiple Choice
Which of the following is NOT a temporary account?
20
views
3. Accrual Accounting Concepts
Closing Entries
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
What is the impact of repaying a short-term bank loan just before the balance sheet date?
A
It only affects the income statement, not the balance sheet.
B
It increases equity by reducing liabilities.
C
It increases both assets and liabilities on the balance sheet.
D
It decreases both liabilities and cash on the balance sheet.
Verified step by step guidance1
Understand the nature of the transaction: Repaying a short-term bank loan involves using cash (an asset) to reduce a liability (the loan). This transaction directly impacts the balance sheet.
Identify the accounts affected: The repayment reduces the 'Cash' account under assets and the 'Short-term Loan' account under liabilities. Both are balance sheet accounts.
Analyze the impact on equity: Since this transaction does not involve revenue or expenses, it does not affect the income statement or equity. Equity remains unchanged.
Confirm the net effect: The decrease in liabilities is offset by the decrease in assets (cash), so the overall balance sheet remains balanced.
Summarize the result: The repayment decreases both liabilities and cash on the balance sheet, aligning with the correct answer provided in the problem.
2:37mWatch next
Master Introduction to Closing Entries:Temporary and Permanent Accounts with a bite sized video explanation from Brian
Start learningRelated Videos
Related Practice
Closing Entries practice set
Problem sets built by lead tutorsExpert video explanations