On September 30,MFP Co.paid employee salaries $7,000,including $1,000 it owed to its employees last month.What are the effects of this transaction on the accounting equation?

Question

Quizplus · Accepted Answer

The payment of employee salaries decreases the assets (cash) by $7,000, decreases the liabilities (amount owed to employees) by $1,000, and increases the expenses (salary expense) by $7,000, resulting in a decrease in equity (retained earnings). Therefore, the effect on the accounting equation is a decrease in assets, decrease in liabilities, and an increase in expenses. This is reflected in option B.