Question

What effect does ""recognizing an accrued liability for utilities at the end of the accounting period "" have on the accounting equation?

a. Assets decrease and liabilities decrease.
b. Assets decrease and stockholders' equity decreases.
c. Liabilities increase and stockholders' equity decreases.
d. Liabilities increase and stockholders' equity increases.

Answer 1

Recognizing an accrued liability for utilities increases liabilities and decreases stockholders' equity in the accounting equation.

Step-by-step explanation:

When recognizing an accrued liability for utilities at the end of the accounting period, the effect on the accounting equation is that liabilities increase and stockholders' equity decreases. The accrued liability is recorded because the utility services have been used but not yet paid for, hence the company now owes money to the utility provider. This liability is a claim against the company's assets, which effectively reduces the equity ownership of the stockholders.

Therefore, the correct answer is:
c. Liabilities increase and stockholders' equity decreases.