The following transaction has been recorded in the general journal:

How will this transaction affect the company's financial statements after it is posted to the ledger accounts?
A)Decreases Total Liabilities
B)Increases Retained Earnings
C)Decreases Total Assets
D)Decreases Stockholders' Equity

Question

The following transaction has been recorded in the general journal:

How will this transaction affect the company's financial statements after it is posted to the ledger accounts?
A)Decreases Total Liabilities 
B)Increases Retained Earnings 
C)Decreases Total Assets 
D)Decreases Stockholders' Equity

Quizplus · Accepted Answer

The debit to interest expense represents an increase in the interest expense account,which is actually a decrease in stockholders' equity (retained earnings).Debiting an expense account,therefore,reduces stockholders' equity.The credit to interest payable increases total liabilities.

The Following Transaction Has Been Recorded in the General Journal