Question

For each transaction a through f, identify its impact on the accounting equation (select from 1 through 6 below).

f. The company workers earn wages this period but are not paid until next period.

1. Decreases an asset and decreases equity.

2. Increases an asset and increases liability.

3. Decreases an asset and decreases liability.

4. Increases an asset and decreases an asset.

5. Increases liability and decreases equity.

6. Increases an asset and increases equity.

Short answer

Expenses are the cost incurred by the business to generate revenue and the correct impact will be impact number 5

Step-by-step solution

Definition of Expense

Expenses are defined as the cost incurred by the business to generate some revenue for the business.

Identification of the impact

The correct impact of the transaction will be impact number 5 which is an increase in liability and a decrease in equity of the business. The wages expense will come under equity as it will reduce the equity and it will also create liability for the company.