Assume That a Company Has Earned Income During the Year

Multiple Choice

Assume that a company has earned income during the year, and has not yet paid any income taxes. At the end of the year, what entry, if any, should be recorded using accrual accounting to reflect the fact that the company will have to pay taxes on the income it has earned?

A) No entry is needed, since no cash payment has yet been made.
B) An entry reducing an asset, increasing an expense, and decreasing equity
C) An entry increasing a liability, increasing an expense, and decreasing equity
D) An entry decreasing a liability, increasing an expense, and reducing equity