Gallahan Corporation recorded an adjusting entry using T-accounts as follows:
Which of the following reflects how this adjustment affects the company's financial statements?

Question

Quizplus · Accepted Answer

The adjusting entry decreases both assets (prepaid rent) and equity (retained earnings) by $1,000. This will result in a decrease in both the balance sheet and income statement. Specifically, assets will decrease by $1,000 and expenses will increase by $1,000 on the income statement, resulting in a decrease in net income for the period.

Gallahan Corporation Recorded an Adjusting Entry Using T-Accounts as Follows