Jane is an accountant operating as a sole proprietor. On 14 February she pays $600 wages in cash to her receptionist for work done during the first half of the month. Which of the following represents the effect of this transaction on the accounting equation?
A) Decrease in cash at bank $600; decrease in liability accounts payable $600.
B) Decrease in cash at bank $600; increase in liability accounts payable $600.
C) Decrease in cash at bank $600; increase in equity $600.
D) Decrease in cash at bank $600; decrease in equity $600.

Question

Quizplus · Accepted Answer

Paying wages decreases cash (an asset) and also decreases equity because it is an expense that reduces the owner's equity.

Jane Is an Accountant Operating as a Sole Proprietor