An employee worked for a small business during the current month but he will not be paid until the next month.If the business uses accrual accounting, what would be the effect on the accounting equation in the current month?
A)Assets decrease and liabilities decrease.
B)Liabilities increase and owners' equity increases.
C)Liabilities increase and owners' equity decreases.
D)There is no effect at this time.

Question

Quizplus · Accepted Answer

Under accrual accounting, expenses are recognized when they are incurred, not when they are paid. Therefore, recognizing the employee's salary as an expense in the current month increases liabilities (salary payable) and decreases owners' equity (due to the expense reducing net income).

An Employee Worked for a Small Business During the Current