On December 31, Year 1, Gaskins Company Owed $4,500 in Salaries

Multiple Choice

On December 31, Year 1, Gaskins Company owed $4,500 in salaries to employees who had worked during December but will not be paid until January, Year 2. If the year-end adjustment is properly recorded on December 31, Year 1, what will be the effect of this accrual on net income and cash flows from operating activities reported for Year 1?

A) No effect on net income; no effect on cash flow from operating activities
B) Decrease in net income; no effect on cash flow from operating activities
C) Increase in net income; decrease in cash flow from operating activities
D) No effect on net income; decrease in cash flow from operating activities