What effects would the accrual of $80 of interest on a note payable have on financial statements?
I. Balance sheet: Liabilities are decreased by $80
II. Income statement: Expenses are increased by $80
III. Balance sheet: Retained earnings are decreased by $80
IV. Balance sheet: Cash assets are decreased by $80
V. Balance sheet: Liabilities are increased by $80
A) I, II and III
B) II, III and V
C) II, IV and V
D) II, III and IV
E) IV and V

Question

Quizplus · Accepted Answer

II, III and VThe accrual of $80 of interest on a note payable would increase expenses on the income statement, decrease retained earnings on the balance sheet, and increase liabilities on the balance sheet. Accruing interest does not directly affect cash assets at the time of accrual.

What Effects Would the Accrual of $80 of Interest on a Note