Cost of the asset$100,000
Life of the asset 5 years
Depreciation rate20%
Capital cost allowance rate 50%
Residual value of the asset nil
Income tax rate 50%
-An entrepreneur pays $3,000 in cash for salaries. What is the effect on the financial statements?
A) Current assets decrease and expenses increase.
B) Revenues decrease and current assets decrease.
C) Expenses increase and current assets increase.
D) Current liabilities increase and expenses increase.

Question

Cost of the asset$100,000 
Life of the asset 5 years 
Depreciation rate20% 
Capital cost allowance rate 50% 
Residual value of the asset nil 
Income tax rate 50%
-An entrepreneur pays $3,000 in cash for salaries. What is the effect on the financial statements?
A) Current assets decrease and expenses increase.
B) Revenues decrease and current assets decrease.
C) Expenses increase and current assets increase.
D) Current liabilities increase and expenses increase.

Quizplus · Accepted Answer

Paying salaries in cash decreases current assets (cash) and increases expenses (salaries expense), impacting the income statement and the balance sheet.

Cost of the Asset$100,000