Question

Expense recognition impacts the accounting equation by?

Answer 1

The impact of expense recognition on the accounting equation is shown below:

	Assets	=	Liabilities	+	Equity
Expense incurred and paid	Decrease	=	NE	+	Decrease
Expense incurred but not paid	NE	=	Increase	+	Decrease

NE: No Effect

Explanation: When an expense is incurred and paid, expenses will increase resulting in decrease in net income and thus decrease in equity while cash will also decrease resulting in decrease in assets.  

When an expense is incurred however, not yet paid, expenses will increase resulting in decrease in net income and thus decrease in equity and liabilities will increase.