Question

On March 15, Civic Company paid its employees for two weeks' wages. This transaction will have which of the following impacts on the accounting equation?

a. Assets will increase and liabilities will decrease.
b. Assets will decrease and stockholders' equity will increase.
c. Assets will increase and liabilities will increase.
d. Assets will decrease and stockholders' equity will decrease.

Answer 1

When Civic Company pays its employees, it uses cash assets to reduce wage liabilities, decreasing both assets and liabilities in the accounting equation.

Step-by-step explanation:

The student asked about the impact of Civic Company paying its employees for two weeks' wages on the accounting equation. When a company pays wages, it is using its cash resources, which are an asset, to pay off its wage liability. Therefore, the company's assets will decrease because cash is being paid out, and its liabilities will decrease because the wage obligation has been fulfilled. As a result of this transaction, the equity section of the accounting equation is not directly affected. So, the correct answer to the student's question would be that this transaction will decrease both assets and liabilities in the company's accounting equation.