If the Effect of the Credit Portion of an Adjusting

question 57

Multiple Choice

If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of the following describes the effect of the debit portion of the entry?

• A) increases the balance of a contra asset account
• B) increases the balance of an asset account
• C) decreases the balance of an owner's equity account
• D) increases the balance of an expense account

---

Definitions:

Present Value

The immediate value of a future stream of income or lump sums of money, assessed with a specific interest rate in mind.

Nominal Rate

The interest rate stated on a financial instrument, without adjustment for the full effect of compounding or inflation.

Annuity

A financial product that pays out a fixed stream of payments to an individual, often used as part of retirement strategies.

Times Interest Earned

A metric assessing a firm's capability to fulfill its debt requirements using its earnings prior to interest and taxes.