How will the following adjusting journal entry affect the accounting equation?
A)increase assets, increase revenues
B)increase liabilities, increase revenues
C)decrease liabilities, increase revenues
D)decrease liabilities, decrease revenues

Question

How will the following adjusting journal entry affect the accounting equation? 
A)increase assets, increase revenues 
B)increase liabilities, increase revenues 
C)decrease liabilities, increase revenues 
D)decrease liabilities, decrease revenues

Quizplus · Accepted Answer

This adjusting entry implies a reduction in liabilities and an increase in revenues. Therefore, the accounting equation will reflect an increase in both sides, but since liabilities are decreasing, the effect on revenues will be greater, resulting in a net increase in equity. Thus, the answer is C, decrease liabilities, increase revenues.

How Will the Following Adjusting Journal Entry Affect the Accounting