Question

Incurring an expense on account will result in:

1)total assets decreasing
2) liabilities increasing
3) retained earnings decreasing
4) both 2& 3

Answer 1

Incurring an expense on account will result in both 4) liabilities increasing and retained earnings decreasing.

Step-by-step explanation:

Incurring an expense on account will result in both liabilities increasing and retained earnings decreasing.

When an expense is incurred on account, it means that the company has received goods or services but has not yet paid for them. This increases the company's liabilities because it owes money to the supplier or service provider.

At the same time, the expense reduces the company's retained earnings. Retained earnings are the accumulated profits of the company that are not distributed to shareholders as dividends. Since the expense reduces the company's net income, it also reduces the amount of earnings that are retained by the company.