If a company provides for tax at year-end,the effect on the accounting equation is that:
A) an asset increases and another asset decreases
B) an asset decreases and owners' equity decreases
C) an asset decreases and a liability decreases
D) a liability increases and owners' equity decreases.

Question

Quizplus · Accepted Answer

When a company provides for tax, it means that they are setting aside money to pay for their tax liability. This creates a liability for the company, as they owe money to the government. At the same time, the company's owners' equity decreases, since there is less money available for them to use for other purposes. Therefore, the effect on the accounting equation is that a liability increases and owners' equity decreases.

If a Company Provides for Tax at Year-End,the Effect on the Accounting