Final answer:
Recording expense deferrals adjusts the financial statements by increasing expenses and decreasing assets. A deficit specifically is the annual shortfall between revenues and expenditures, not the overall debt or cancellation of a program.
Step-by-step explanation:
The overall financial statement effect of recording the adjusting journal entry for expense deferrals is to increase expenses on the income statement and reduce assets on the balance sheet. When an expense is deferred, this means payment has been made in advance for goods or services to be received in the future. The expense is initially recorded as an asset (prepaid expense). As time passes and the goods or services are used or consumed, an adjusting entry is made to recognize the expense. This results in an increase in expense on the income statement, which decreases net income. At the same time, the prepaid asset is reduced on the balance sheet, as the asset has now been 'used up' or consumed.
Looking at the reference, a deficit refers to b. the annual budget shortfall between revenues and expenditures. This means it's the amount by which a government, company, or individual’s spending exceeds its income over a particular period of time. In general accounting and economic terms, this might lead to an accumulation of debt if the deficits continue over multiple periods.