Question

If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of the following describes the effect of the debit portion of the entry?

A. increases the balance of an expense account
B. increases the balance of an asset account
C. decreases the balance of an owner's equity account
D. increases the balance of a contra asset account

Answer 1

Answer:

A. increases the balance of an expense account

Explanation:

The following effect can be shown through an example -

If we increase the credit portion of an adjusting entry to increase the balance of a liability account, the effect of the debit portion will be an expense.

For example -

When wages expenses incurred but not paid, at that moment, a liability will increase due to that effect. The journal entry to record that transaction is -

Wages expense     Debit

Wages payable      Credit

Therefore, the adjusting entry increases the liability as well as the expenses.