The business pays a salary of £250 which two accounts are affected?

• A. Salary expenses will increase by £250 and Cash will decrease by £250
• B. Salary expenses will decrease by £250 and Cash will increase by £250
• C. Salary expenses will increase by £250 and Cash will increase by £250
• D. Salary expenses will decrease by £250 and Cash will decrease by £250

Answer: (A)

When you pay salaries, you’re recording an expense and reducing cash. In double-entry bookkeeping, expenses are increased (debited) and cash, an asset, is decreased (credited) when money leaves the business. So the salary expense should be increased by £250, and cash should be decreased by £250. The journal entry would be Debit Salary Expense 250 and Credit Cash 250. This shows the cost of labour in the income statement and the cash flowing out of the business. Options that would imply expenses going down or cash going up don’t match what happens when salaries are paid.