The payment of employee salaries has what effect on the accounting equation?
A)assets and stockholders' equity decrease
B)liabilities and stockholders' equity decrease
C)assets decrease and liabilities increase
D)assets increase and liabilities decrease

Question

Quizplus · Accepted Answer

When employee salaries are paid, the company's assets (specifically cash or bank balance) decrease because money is paid out. At the same time, this payment reduces the company's liabilities (if the salaries were accrued as a liability) or expenses (affecting the retained earnings component of stockholders' equity) if they were due for payment, thus impacting stockholders' equity. However, since the question does not specify whether salaries were previously accrued, the most direct effect is the reduction in assets due to the cash outflow, without a direct mention of liabilities in this context. Therefore, the explanation focuses on the decrease in assets and the indirect effect on stockholders' equity through the reduction of expenses.

The Payment of Employee Salaries Has What Effect on the Accounting