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

The adjusting journal entry will decrease liabilities (via a reduction in an accrued expense) and increase revenues (via recognition of previously unrecorded revenue). This will result in an increase in equity (revenues are part of equity). Therefore, the accounting equation will be: Assets = Liabilities + Equity. The decrease in liabilities will result in a decrease on the liabilities side of the equation, and the increase in equity will result in an increase on the equity side of the equation. Overall, the equation will balance.

How Will the Following Adjusting Journal Entry Affect the Accounting