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

Question

Quizplus · Accepted Answer

When employee salaries are paid, the company uses its assets (typically cash) to cover the payment, which decreases the assets. This payment is an expense, which reduces the net income and, consequently, the retained earnings part of stockholders' equity. Thus, assets decrease and stockholders' equity decreases.

The Payment of Employee Salaries Has What Effect on the Accounting