Final answer:
Incurring cash expenses decreases a company's assets and can decrease its liabilities if the expense was previously recorded as payable, or otherwise, a decrease in equity. No new liabilities are incurred with cash expenses, so the answer is c) Assets: -, Liabilities: -.
Step-by-step explanation:
The question being asked is about the impact of cash expenses on a company's financial statements. When a company incurs cash expenses, this results in the reduction of assets, specifically cash or cash equivalents, and the reduction of liabilities if the expense was previously payable now being settled or a simultaneous decrease in equity if it was an expense impacting the owner's equity.
Since no new obligation is created in the case of a cash expense (assuming it was not previously payable), there is no increase in liabilities. Therefore, the correct answer is c) Assets: -, Liabilities: -.
To give a clearer picture, here's how the T-account would look: When cash is paid out, the cash account (an asset) decreases. If the cash was used to pay off a payable, then that liabilities account would decrease alternatively.
However, if the cash is paid for an expense immediately recognized in the income statement, then it's equity that decreases through retained earnings (a decrease in assets matched by a decrease in equity, since retained earnings are part of net worth which is included on the liabilities side of the T-account).