Question

If a previously unrecorded expense is recorded when it is paid with cash recording the the transaction will :Group of answer choices increase expenses and increase liabilities. decrease expenses and increase liabilities. increase expenses and decrease expenses by an equal amount. increase expenses and decrease assets. increase expenses and increase retained earnings.

Answer 1

Answer:

increase expenses and decrease assets.

Explanation:

Whenever any expense is recorded, it increases the total quantum of expenses.

With this the net revenue is decreased and so is decreased the retained earnings as ultimately net income forms part of retained earnings.

Further, since the expense was not recorded previously, there is no outstanding liability on such expense to be paid in books, also provided that the expense is paid in cash and therefore, this will not increase or create liability.

As cash is paid the assets will decrease as the cash is a part of assets.

Accordingly net effect will be:

Increase in expenses for the period, and further decrease in assets.