Recognizing an accrued expense at the end of an accounting period normally has what effect?
Correct answer: B. It decreases profit and increases liabilities
- A. It increases profit and decreases liabilities
- B. It decreases profit and increases liabilities
- C. It increases assets and increases profit
- D. It decreases liabilities and increases cash
Explanation
The accrued expense is charged to the current period, reducing profit. Because it is unpaid, it also creates or increases a liability, while cash is unaffected at the recognition date.
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About Accruals, Prepayments and Provisions
Accruals and prepayments adjust income and expenses to the accounting period in which they are earned or incurred, following the matching principle. Provisions recognise expected obligations or losses when their amount or timing is uncertain, which distinguishes them from ordinary accruals and from general reserves.
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