What is the outcome of the transaction where Rosemary pays $50 to her niece?

• A. Increase in Cash and Increase in Equity
• B. Decrease in Cash and Increase in Liabilities
• C. Decrease in Cash and Increase in Expenses
• D. Increase in Cash and Decrease in Equity

Answer: (C)

When Rosemary pays $50 to her niece, the correct outcome of the transaction reflects that cash is decreased because she is spending money. This spending typically represents an expense for Rosemary. In accounting, when cash is paid out for purposes such as gifts, payments for services, or other personal expenses, it is classified as an expense.

This transaction results in a decrease in assets, specifically cash, because Rosemary is parting with her money. Meanwhile, it also represents an increase in expenses. The expenses will ultimately affect the equity in the accounting equation, that is, as expenses increase, the net income decreases, which, in turn, may decrease equity over time.

Overall, this illustrates a fundamental principle in accounting where cash outflows for expenses lead to a corresponding increase in the expense accounts, thereby providing insight into the financial status of an individual or entity.