Question

When a company pays employees' salaries for the current period, how will the basic accounting equation be affected?A. Stockholders' equity decreases.B. Revenues decrease.C. Expenses decrease.D. Liabilities decrease.

Answer 1

Answer:

A. Stockholders' equity decreases.

Explanation:

The accounting equation is defined as:

Assets = Liabilities + Stockholder's Equity

Stockholder's Equity = Common stock + Retained earnings

All the revenues and expenses are clubbed in retained earnings and ultimately in stockholder's equity.

Thus, any kind of expenses paid will reduce the revenues and then the retained earnings and further the stockholder's equity in accounting equation.

Therefore, correct option is:

A. Stockholder's Equity.