Question

Walton Company accountants were preparing month-end financial statements. An accounting intern wanted to know which of the transactions below would create an increase in liabilities?

		Recording the amount of expired prepaid insurance.
		Recording utility expense paid immediately.
		Accruing unrecorded interest expense.
		Accruing unrecorded interest revenue.
		Recording depreciation expense.

Answer 1

The correct answer is Option C accuring unrecorded intrest expense

Option A is simply transfer of prepaid expenses which are expired and recoded to the income statement in the year in which expenses are expired.

Option B is simple operating expenses which does not affect balance sheet item

Option C is correct . Unrecorded intrest which is not paid is related to current year. This intrest is outstanding and related to current year. So it will be paid within one year.so it will increase current liabilities of company and added to Interest expense of the year in income statement.

Option D is income so it will increase current assets of company

Option E is depriciation expenses will be recorded in income statement only.

So correct answer is option C .