What is the impact when recording payroll expense for an employee's salary?

When recording payroll expense for an employee's salary, the impact on the financial statements reflects the obligation to pay the employee. The correct answer indicates a decrease in cash and an increase in salary expense.

This is because when a company processes payroll, it incurs a salary expense that will reflect on the income statement, increasing the overall expenses of the company. Simultaneously, since the payroll is typically paid in cash, there is a reduction in the cash balance on the balance sheet as the company disburses funds to reimburse the employees for their work.

Understanding this accounting entry is crucial, as it illustrates the concept of matching expenses with revenues in the accounting period they are incurred. This principle is part of accrual accounting, whereby expenses are recognized when they are incurred rather than when the cash is actually paid out. Therefore, the correct answer accurately reflects the dual impact of payroll expenses on both cash outflows and expense increases.