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Multiple Choice Question The business receives and immediately pays a $300 advertising bill. How would this payment affect the total equity of a business?
a. Expenses would be decreased, so equity would be decreased.
b. There is no affect on total equity.
c. Expenses would be decreased, so equity is increased.
d. Expenses would be increased, so equity is decreased.

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Answer:

d. Expenses would be increased, so equity is decreased.

Explanation:

The business received and paid the advertisement expense of $300 immediately. Expense of advertisement will be increased by $300 and total equity will be decrease by same amount as expense decrease the net income of the business which will ultimately added to equity as retained earning. So the correct option is d. Expenses would be increased, so equity is decreased.

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