Multiple choice

Expenses are reflected in the form of

  1. inflow of assets or incurrence of liabilities

  2. outflow of assets or decrease of liabilities

  3. inflow of assets or decrease of liabilities

  4. outflow of assets or incurrence of liabilities
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Expenses represent outflows of economic benefits during a period. This happens either through cash outflow (decrease of assets like cash) or by incurring liabilities (increase of creditors). For example, paying rent decreases cash (asset outflow), or purchasing on credit increases accounts payable (liability incurrence). Option A describes revenue, not expenses.

Keep practicing — related questions