If Accrued Expenses are paid down by 10 (cash outflow), which statement is true?

• A. Cash increases by 10
• B. Cash decreases by 10
• C. Cash remains unchanged
• D. Cash increases by 4

Answer: (B)

Accrued expenses are a liability recognized when an expense is incurred but not yet paid. When you pay that amount, you reduce cash and also reduce the accrued liability by the same amount. So a payment of 10 results in cash decreasing by 10. The expense’s impact on the income statement happened when the accrual was recorded, not when the payment is made, so the cash payment doesn’t increase income or expense. The other options would imply cash going up, staying the same, or changing by a different amount, which isn’t the case for paying down an accrued liability by 10.