What is the effect of the accrual of interest expense on the elements of the financial statements?
A)Liabilities will increase and retained earnings will decrease.
B)Assets and liabilities will decrease.
C)Assets will increase and retained earnings will increase.
D)Liabilities will increase and assets will decrease.

Question

Quizplus · Accepted Answer

The adjusting entry to accrue interest expense will increase liabilities (by decreasing discount on notes payable,a contra liability account)and decrease stockholders' equity (retained earnings).It increases expenses (interest expense),which decreases net income.It does not affect the statement of cash flows.

What Is the Effect of the Accrual of Interest Expense