Accounting for IGCSE & O level - Preparation Of Financial Statements (Section 25 - No. 11)
What is the effect on the accounting equation when a company pays salaries to its employees?
Increases assets, increases liabilities.
Decreases assets, decreases equity.
Increases assets, decreases equity.
Decreases liabilities, increases equity.
Explanation
Paying salaries decreases cash (an asset) and decreases retained earnings (a component of equity) because salaries are expenses.
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