If the business uses $30,000 of its cash to pay salaries, which balance sheet change occurs?

• A. Cash decreases by $30,000; Retained earnings decreases by $30,000
• B. Cash increases by $30,000; Retained earnings increases by $30,000
• C. Cash decreases by $30,000; Accounts payable decreases by $30,000
• D. Cash decreases by $30,000; Inventory decreases by $30,000

Answer: (C)

Paying salaries with cash lowers the cash asset. If those salaries were previously recorded as an accrued obligation, there’s a corresponding reduction in that liability. In many simplified balance sheets, this obligation is shown under accounts payable, so the change appears as cash decreasing and accounts payable decreasing. The transaction does not affect inventory, and the equity impact (retained earnings) shows up through the expense on the income statement rather than as an immediate balance-sheet item.