AIPB Mastering Adjusting Entries Practice Test 2025 – All-in-One Guide to Excel in Your Certification!

An adjustment for accrued expenses typically involves recognizing expenses that have been incurred but not yet paid or recorded. This means that an expense account needs to be increased to reflect the cost that has been incurred during the accounting period. At the same time, a corresponding liability account is created or increased, representing the obligation to pay this expense in the future.

When an adjustment for accrued expenses is made, the expense account reflects the amount that has been incurred, which impacts the income statement by increasing expenses and thereby decreasing net income. Simultaneously, the liability account (usually labeled as "Accrued Liabilities" or "Accounts Payable") acknowledges that there is an amount owed, which will need to be settled in the future.

This process complies with the accrual basis of accounting, which dictates that expenses should be recognized in the period they are incurred, not necessarily when cash is paid out. In contrast, other options would imply different accounting scenarios that do not accurately reflect the mechanics of accruing expenses. For example, only asset accounts or only liability accounts would not capture the complete nature of the transaction, as they ignore either the expense recognition or the creation of the corresponding liability. Therefore, the correct statement aligns with standard accounting practices regarding accrued expenses.