Question

An expense

a.   decreases assets and liabilities.

b.   decreases stockholders’ equity.

c.   leaves stockholders’ equity unchanged.

d.         is basically the same as a liability

Answer 1

An expense is the amount incurred by the company during its operation. It is debited in the income statement against the net income, therefore reducing the net income by such amount.

Expense do not affect asset or liabilities as it is presented in net income statement. However, as it reduces the net income which is transferred to the retained earnings in the balance sheet which is a part of stock holders equity, it reduces the net income so as the stock holder equity.

As the net income is reduced by the expenses therefore it reduces the stock holder equity.

So the correct option is B

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