A company purchases software;it has an estimated useful life of three years.The adjustment to recognize amortization for the use of software would cause which of the following?
A)An increase in liabilities,an increase in expenses,and a decrease in stockholders' equity.
B)A decrease in assets,a decrease in stockholders' equity,and an increase in expenses.
C)A decrease in assets,an increase in liabilities,and an increase in expenses.
D)An increase in assets,an increase in liabilities,and a decrease in expenses.

Question

Quizplus · Accepted Answer

The adjusting entry to record amortization relating to the use of software would include a debit to Amortization Expense,which increases expenses.The increase in expenses would decrease net income and decrease Retained Earnings,a component of stockholders' equity.The adjustment also includes a credit to Accumulated Amortization,a contra-asset account,which is like a negative asset account that is subtracted from the Software account in the assets section of the balance sheet.As such,the increase in this contra-asset account decreases assets.

A Company Purchases Software;it Has an Estimated Useful Life of Three