Which of the following adjustments would require decreasing the liabilities reported on the statement of financial position?
A) A company uses $400 worth of supplies during the year.
B) A company records $400 worth of depreciation on equipment.
C) A company has earned $400 of revenue collected at the beginning of the year.
D) A company records $400 of wages earned by employees that will be paid next year.

Question

Quizplus · Accepted Answer

Recording revenue that was collected at the beginning of the year but earned during the year would decrease unearned revenue (a liability), thus decreasing total liabilities. This is because the revenue is no longer unearned; it has been earned during the period, moving the amount from a liability to an increase in equity (retained earnings).

Which of the Following Adjustments Would Require Decreasing the Liabilities