Which of the following pairs of accounts could not appear in the same adjusting entry?

• A. Prepaid Insurance and Insurance Expense
• B. Depreciation Expense and Accumulated Depreciation
• C. Unearned Revenue and Revenue
• D. Interest Income and Interest Expense

Answer: (D)

Adjusting entries are made to recognize items that affect one income statement account and one balance sheet account, reflecting how previously recorded amounts should be reclassified or accrued for the period. Each adjusting entry typically moves a quantity from an asset or liability to a revenue or expense (for example, turning a prepaid asset into an expense, or turning unearned revenue into earned revenue; or recording depreciation by moving from a fixed asset to an accumulated depreciation and an expense).

The reason the pair involving interest income and interest expense cannot appear in the same adjusting entry is that both are income statement accounts. An adjusting entry that balances must involve a balance sheet account to anchor the transaction (such as converting a prepaid asset to an expense, moving unearned revenue to revenue, or recording depreciation with accumulated depreciation). Since there isn’t a separate balance sheet account tied to both sides of the same entry here, you wouldn’t combine interest income and interest expense in a single adjusting entry. In practice, you'd handle accruals for interest income and interest expense in separate entries, each with the appropriate balance sheet counterpart (like interest receivable or interest payable).