Which of the following is true of the effect of net loss on financial statements?
A) It decreases the cash account balance.
B) It increases expenses.
C) It decreases the owner's capital account balance.
D) It decreases accounts payable.
E) It increases the owner's drawing account balance.

Question

Quizplus · Accepted Answer

A net loss is a negative profit, which reduces the owner's equity or capital account balance. This is because the expenses exceed revenues for the period and the loss is subtracted from the owner's investment in the business. The cash account balance may or may not be affected depending on the cause of the loss, such as non-cash expenses like depreciation or bad debts, or changes in inventory or accounts receivable. Expenses may increase due to higher interest or taxes, but not necessarily because of the net loss alone. Accounts payable and owner's drawing account balance are also not directly affected by the net loss.

Which of the Following Is True of the Effect of Net