Final answer:
A Type 2 adjusting entry affects the Liability account type. It records accruing expenses that have been incurred but not yet paid, increasing both the expense and liability accounts on the balance sheet. The adjustment ensures accurate reporting of financial statements per the accrual basis of accounting.
Step-by-step explanation:
The account type directly affected by a Type 2 adjusting entry is Liability. A Type 2 adjusting entry typically involves an adjustment to liabilities and expenses that have been incurred but are not yet recorded in the accounts before the financial statements are prepared. An example is accrued expenses, such as wages owed but not yet paid. When performing a Type 2 adjustment, the accountant will debit an expense account to increase it and credit a liability account to increase it, reflecting the company's obligation to pay in the future.
A T-account helps in visualizing the impact of such adjustments on a balance sheet, which shows assets on one side and liabilities and owners' equity on the other in a two-column format. Adjusting entries assure that revenues are recorded in the period in which they are earned and expenses are recognized in the period in which they are incurred, following the accrual basis of accounting.
Understanding unit of account is essential in accounting as it is the standard unit in which transaction costs and market values are measured in an economy, influencing the recording and adjusing of entries. Although a time deposit or a certificate of deposit is an asset, it's more relevant when discussing investments and interest income rather than adjusting entries.