Johnson, Inc.paid rent expense of $3,500 for the month of October.How are the accounts affected due to this transaction?
A) Increase in cash $3,500 and increase in retained earnings $3,500
B) Increase in cash $3,500 and decrease in retained earnings $3,500
C) Decrease in cash $3,500 and decrease in retained earnings $3,500
D) Decrease in cash $3,500 and increase in retained earnings $3,500

Question

Quizplus · Accepted Answer

Paying rent results in a decrease in cash (an asset) and a decrease in retained earnings (equity) because expenses reduce net income, which in turn reduces retained earnings.