Liabilities Week 3

Question 1

Moe’s Fro Yo makes a payment on a long-term note. What is the effect on the accounting equation?

Answer 1

Assets would decrease. Liabilities would decrease. There would be no effect on Equity.

Question 2

Gene’s Gummy Shoppe purchased inventory from a vendor on credit and will pay the invoice at a later date when it is due. What is the effect on the accounting equation?

Answer 2

Assets would increase. Liabilities would increase. There is no effect on Equity.

Question 3

Harry’s Handsome Cuts, a barber, hired Candy’s Consultants, a consulting firm, to do consulting work. Candy’s Consultants has billed Harry’s Handsome Cuts $5,000, which will be due in August. What is the effect on the accounting equation?

Answer 3

No change to Assets, Liabilities would increase, Equity would decrease.

Question 4

True or False: The more you pay out to employees in wages and salaries the less cash you’ll have on hand in your assets to pay off liabilities.

Answer 4

Correct! Having a greater amount to pay out in wages and salaries means having less cash on hand to pay other outstanding liabilities.

Question 5

Which of the following best describes the journal entry for recording employee wages?

Answer 5

A debit to wage expense and a credit to all employee deductions and cash

Question 6

Which of the following best describes the journal entry for recording the employer’s expense?

Answer 6

Incorrect. The journal entry to record the employer’s expense will debit payroll tax and credit all taxes payable.