In: Accounting
Which of the following would not be a correct form for an adjusting entry?
A. A debit to an expense and a credit to a liability
B. A debit to an asset and a credit to a revenue
C. A debit to a liability and a credit to a revenue
D. A debit to an asset and a credit to a liability
The answer is D, please explain why and please list all correct adjusting entries, and name some incorrect adjusting entries the explain why.
Answer: D. A debit to an asset and a credit to a liability
Adjusting entries are entries which are recorded at the end of the financial year to adjust and correctly record all the incomes and expenses. Since debiting an asset and crediting a liability doesn't impact the incomes nor expenses, it is not an adjusting entry.
The various adjusting entries are below. (Correct adjusting entries)
1. Accrued revenue: Debit asset and credit revenue
2. Accrued expense: Debit expense and credit liability
3. Deferred revenue: Debit revenue and credit liability
4. Prepaid expense: Debit asset and credit expense
5. Depreciation: Debit expense and credit asset
Incorrect adjusting entries:
1. Debit asset and credit liabilty
2. Debit liability and credit asset
3. Debit and credit two different asset accounts
4. Debit and credit two different liability accounts
The abve are incorect adjusting entries as these do not have any impact on the incomes and expenses