A business pays $500 cash for their electricity bill.What effect does this transaction have on the accounting equation?

Question

Quizplus · Accepted Answer

The transaction involves a payment for an expense, therefore it will result in a decrease in the asset cash of $500 and a decrease in profit or loss of $500 to record the electricity expense. There is no effect on the liability accounts payable in this transaction. Option A is incorrect because it implies that the business had an account payable for the electricity bill, which is not indicated in the question. Option B is incorrect because it implies that there is a decrease in profit or loss, which is not accurate since paying an expense reduces profit or loss. Option D is incorrect because it implies that there is an increase in profit or loss which is not accurate as paying an expense reduces profit or loss.

A Business Pays $500 Cash for Their Electricity Bill