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What is the effect of recording an accrued expense on the financial statements?
What is the effect of recording an accrued expense on the financial statements?
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Practice Questions
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What is the effect of recording an accrued expense on the financial statements?
Increase assets and decrease liabilities
Increase liabilities and decrease equity
Increase expenses and decrease assets
Increase revenues and increase equity
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Recording an accrued expense increases liabilities and decreases equity due to the recognition of an expense.
Questions & Step-by-step Solutions
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Q: What is the effect of recording an accrued expense on the financial statements?
Solution:
Recording an accrued expense increases liabilities and decreases equity due to the recognition of an expense.
Steps: 5
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Step 1: Understand what an accrued expense is. It is an expense that has been incurred but not yet paid.
Step 2: Recognize that when you record an accrued expense, you are acknowledging that you owe money for a service or product received.
Step 3: Realize that recording this expense increases your liabilities because you now have an obligation to pay.
Step 4: Note that expenses reduce your net income, which in turn decreases your equity on the financial statements.
Step 5: Conclude that the overall effect of recording an accrued expense is an increase in liabilities and a decrease in equity.
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