Question

Which of the following transactions creates an increase in expenses? 1. purchase of office equipment on credit 2. payment of wages 3. payment on account payable 4. payment of the principle on a bank loan

Answer 1

Answer:

Option 2 i.e. Payment of Wages is Correct.

Purchase of office Equipment in Credit will increase Property, Plant and Equipment i.e. Equipment and Current Liabilities i.e. Accounts Payable.

Payment of wages increases Expenses i.e. Wages Expense and Decreases Current assets i.e. Cash.

Payment on Accounts Payable decreases Current Assets i.e. Cash and Current Liabilities i.e. Accounts Payable.

Payment of the Principal on a Bank Loan decreases Current Assets i.e. Cash and Liabilities i.e. Loans Payable.