The business incurred an expense and paid it immediately. To record this __________.
Question 39 options:
an expense is debited and a liability is credited
an expense is debited and an asset is credited
an expense is debited and Capital is credited
None of the above answers are correct.
D
nope.
Yeah B
right.
A credit to an asset account was posted to a liability account. This error would cause __________.
Question options:
assets to be understated
liabilities to be overstated
capital to be understated
None of the above answers are correct.
An- A
liabilities would be understated.
The correct answer to record this transaction would be: "an expense is debited and an asset is credited."
To understand why, let's break down the transaction and the accounting principles involved.
In this scenario, the business incurs an expense and pays it immediately. When a business incurs an expense, it means that it has consumed a resource or received a service that will benefit the business in the short term but does not result in the acquisition of an asset.
In the accounting equation, expenses are recorded as decreases in equity (or capital) and increases in liabilities or decreases in assets (depending on the nature of the expense).
In this case, the expense is paid immediately, which means that an asset (cash or a cash equivalent) is used to settle the expenses. When the business pays the expense, it is reducing its cash (an asset) and paying off its liability or reducing its account payable (if any), resulting in a decrease in assets.
Therefore, to record this transaction, the expense account is debited to show the decrease in equity or capital, and the asset account (cash) is credited to show the decrease in assets.