Some types of services, such as insurance, are normally paid for before they are used. As you learned before, these prepayments are deferrals. Rent, interest, salaries, wages, utilities, etc. are the other examples of accrued expenses over time. Expenses incurred but not yet paid or recorded at the end of the accounting period are accrued expenses. Accrued expenses are the ones that are firstly incurred and not recorded as an expense until a future accounting period. Because of the unnecessity, such kinds of expenses are not required for daily recordings. For that reason, companies do not recognize them until the preparation of financial reports.

The amount of such an accrued but unpaid item at the end of the accounting period is both an expense and a liability. At each statement date, companies make the necessary adjustment entries related with accrued expenses. Before the adjustments, liabilities and expenses are understated. So in adjusting entry, expense account will be debited and a liability account will be credited.

The correct answer is A.