Question

Which of the following shows how paying off an accrued liability such as salaries payable will affect a company's financial statements?

A. Balance Sheet Income Statement Statement of
Cash Flows
Assets = Liab. + Equity Rev. − Exp. = Net Inc.
− − NA NA NA NA −FA
B. Balance Sheet Income Statement Statement of
Cash Flows
Assets = Liab. + Equity Rev. − Exp. = Net Inc.
− − NA NA NA NA −IA
C. Balance Sheet Income Statement Statement of
Cash Flows
Assets = Liab. + Equity Rev. − Exp. = Net Inc.
− − NA NA NA NA −OA
D. Balance Sheet Income Statement Statement of
Cash Flows
Assets = Liab. + Equity Rev. − Exp. = Net Inc.
− − NA NA NA NA NA

Answer 1

When a company pays off an accrued liability such as salaries payable, it will decrease the liabilities section of the balance sheet, have no direct impact on the income statement, and be reported as a financing activity in the statement of cash flows.

Step-by-step explanation:

The correct option for the question is option A.

When a company pays off an accrued liability such as salaries payable, it will affect the company's financial statements in the following way:

1. Balance Sheet: The liabilities section of the balance sheet will decrease by the amount paid off, which will result in an increase in the company's equity.
2. Income Statement: There will be no direct impact on the income statement as the expense for the salaries payable has already been recognized when the liability was accrued.
3. Statement of Cash Flows: The cash outflow to pay off the accrued liability will be reported as a financing activity in the statement of cash flows.