PRC-1 · Chapter 1 · Question 98 of 100
When a business pays routine operating expenses using physical cash, which elements of the fundamental accounting equation are directly decreased?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Assets and Capital (Equity)
Explanation
Paying an expense with cash decreases the cash balance (an asset). Because expenses reduce net profit, they ultimately cause a corresponding decrease in the owner's capital (equity).
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