Question

When the company pays rent expense for the current month, what is the effect on the accounting equation for that company?

Answer 1

decrease the stockholder equity and decrease in assets

Step-by-step explanation:

As we know, the accounting equation is

Total assets = Total liabilities + stockholder equity

In the given case,

The rent is paid for the current month, so the journal entry would be

Rent expense A/c Dr XXXXX

To Cash A/c XXXXX

(Being rent is paid)

So it decreases the stockholder equity as it includes the income and expenses part and it decreases in assets as it reduces the cash balance