Which of the following statements about a journal entry is false? An increase in an asset...

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.

Solutions

Expert Solution

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

ekkarill92 answered 1 year ago

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