Accrual of expenses will increase the expense element and will correspondingly increase the liabilityGroup of answer choicesTrueFalse
Question
Accrual of expenses will increase the expense element and will correspondingly increase the liability
Group of answer choices
- True
- False
Solution
Answer
The statement is True.
When expenses are accrued, it means that they have been incurred but not yet paid. This leads to an increase in the expense element on the income statement, which reflects the expenses that have been recognized in the period, regardless of whether cash has been paid out. Correspondingly, this accrual also results in an increase in liabilities on the balance sheet, as the company now has an obligation to pay those expenses in the future. This is commonly reflected in accounts like "Accrued Expenses" or "Accounts Payable." Thus, the accrual of expenses increases both the expenses and the corresponding liabilities.
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