Accounting for IGCSE & O level - Preparation Of Financial Statements (Section 22 - No. 13)
What is the effect on the accounting equation when a company pays salaries to its employees?
Increases assets and increases equity.
Decreases assets and increases equity.
Decreases assets and decreases equity.
Increases assets and decreases liabilities.
Explanation
Paying salaries reduces cash (an asset) and decreases retained earnings (a component of equity) because salaries are an expense.
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