Accounting for IGCSE & O level - The Fundamentals Of Accounting (Section 40 - No. 44)
What is the impact on the accounting equation when the business incurs an expense and pays it in cash?
Assets increase; liabilities increase.
Assets decrease; equity decreases.
Assets increase; equity increases.
Assets decrease; liabilities decrease.
Explanation
Paying an expense with cash reduces assets (cash) and decreases owner's equity (through a decrease in net income).
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