Select all that applyIf an adjusting entry's debit is to an expense account, then the credit must be to which of the following? (Select all that apply.)Multiple select question.revenuecash expenseliabilityprepaid expense
Question
Select all that applyIf an adjusting entry's debit is to an expense account, then the credit must be to which of the following? (Select all that apply.)Multiple select question.revenuecash expenseliabilityprepaid expense
Solution
The credit could be to either a liability account or a prepaid expense account.
Here's why:
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Liability: If the debit is to an expense account, the company has incurred an expense that it needs to pay. Until it pays off this expense, it is considered a liability. Therefore, the credit could be to a liability account.
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Prepaid Expense: If the company has paid for an expense in advance (a prepaid expense), and it is now recognizing that expense, the debit would be to the expense account and the credit would be to the prepaid expense account. This reduces the amount of the prepaid expense.
So, the correct answers are "liability" and "prepaid expense".
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