Final answer:
A deferral adjustment is when a part of a liability has been paid off and it turns into an expense. This accounting scenario can be seen in examples like prepaid rent or subscriptions. Therefore, the liability then becomes an expense (option D).
Step-by-step explanation:
When a deferral adjustment is made to a liability account, it transitions into an expense account. This is because, in accounting, deferrals refer to times when a part of a liability is paid and thus the requirement of the liability reduces, and the account is adjusted to reflect the payment as an expense.
Often when a deferral adjustment is made to a liability account, such as prepaid rent or annual subscriptions, these accounts shift from being a liability to becoming an expense. For instance, when rent is prepaid it is a liability (something you owe), but when the month arrives for which the rent has been prepaid, a deferral adjustment is done to show that the liability has sort of transformed to an expense (something you have used up).
So, the main answer to your question is D. Expense.
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