In: Accounting
Which of the following statements about a journal entry is false?
An increase in an asset account is compatible with an increase in a liability account.
An increase in an asset account is compatible with a decrease in an asset account.
An increase in a liability account is compatible with an increase in retained earnings.
A decrease in an asset account is compatible with a decrease in owners' equity.
In a journal entry one account is debited and other account is credited. | |||||||||
WE need to keep in mind accounting equation Assets= Liabilities + equity | |||||||||
so if there is increase in asset than there needs to be increase in liabilities or equity with equal amount | |||||||||
so if there is decrease in asset than there needs to be decrease in liabilities or equity with equal amount | |||||||||
Also if there is increase in asset and at the same time decraese in asset so this makes the effect nil and | |||||||||
there is no effect on liability section. Sames goes for liability and equity holder section. | |||||||||
So option a,b and d goes with the above explantions and those are correct/true | |||||||||
Answer | |||||||||
Option c An increase in a liability account is compatible with an increase in retained earnings. | is false | ||||||||
But if there is increase in liabilities side than there should be either increase in asset side, or decrease in liability side | |||||||||
or decrease in stockholder equity that only accounting equation will match and there would be correct debit and credit in journal | |||||||||
entry. Hence Statement C is false there cant be increase in liability account with an incraese in retained earnings | |||||||||
If any doubt please comment |