Question

What is the effect of the following business activity on the element indicated? The month-end accrual for income taxes (20%) is made; revenues, $36,890; expenses, $33,810. --- Assets

1) increase to one and decrease to another
2) no effect
3) increase
4) decrease

Answer 1

The accrual for income taxes will have no direct effect on the assets of the company.

Step-by-step explanation:

When the month-end accrual for income taxes is made, it means that the company has recognized the income tax expense that it owes for the period. This is a liability that the company will need to pay in the future.

Since the question asks about the effect on assets, the answer is no effect. The accrual for income taxes does not directly affect the assets of the company. However, when the company eventually pays the income taxes, it will reduce its cash (an asset) and decrease the liability for income taxes, resulting in a decrease in assets.