An accountant has debited an asset account for $1,000 and credited an expense account for $2,000. Which of the following would be an incorrect way to complete the recording of the transaction?
A)Credit an asset account for $1,000.
B)Credit a liability account for $1,000.
C)Credit a shareholders' equity account for $1,000.
D)Debit a shareholders' equity account for $1,000.

Question

Quizplus · Accepted Answer

Debiting a shareholders' equity account for $1,000 would be incorrect because it would increase equity and make it appear that the company had earned $1,000 when in fact it has incurred an expense of $2,000. The correct way to complete the recording of the transaction would be to credit an asset account for $1,000 to offset the initial debit to the asset account, and credit a liability account for $1,000 to reflect the fact that the company now owes that amount for the expense incurred.

An Accountant Has Debited an Asset Account for $1,000 and Credited