Final answer:
Accrued salary expense increases liabilities and decreases stockholders' equity on the financial statements, affecting net income and retained earnings but not directly impacting cash flow until the salaries are paid.
Step-by-step explanation:
The recording of accrued salary expense would affect the financial statements by increasing liabilities and decreasing stockholders' equity. When a company accrues salary expense, it recognizes the salaries earned by employees but not yet paid. This accounting entry will include an increase in an expense account, which is reported on the income statement, leading to a decrease in net income and therefore a decrease in retained earnings (part of stockholders' equity on the balance sheet). Conversely, the accrual also results in an increase in liabilities (specifically, salaries payable) to represent the obligation to pay the employees in the future.Issuing stock, borrowing from a bank, or issuing bonds are methods for a firm to access financial capital.
Each method has its trade-offs between control, cash flow impacts, and obligations to lenders or shareholders. The accrued salary entry, specifically, has no direct impact on cash flow at the time of the accrual, but it reflects an upcoming cash outflow when the salary is paid.The recording of accrued salary expense affects the financial statements in the following way: it increases expenses and increases liabilities.