In preparing its 2014 adjusting entries, the ZigZag Ltd forgot to adjust the Office Supplies (asset) account for the amount of supplies used up during the year. As a result of this error:
A) 2014 profit is understated, the balance of equity is understated, and assets are understated.
B) 2014 profit is overstated, the balance of equity is correct, and assets are overstated.
C) 2014 profit is overstated, the balance of equity is overstated, and assets are overstated.
D) 2014 profit is overstated, the balance of equity is overstated, and assets are ly stated.

Question

Quizplus · Accepted Answer

If the company forgot to adjust for the supplies used up, expenses would be understated, leading to an overstatement of profit. This overstatement of profit would also cause equity to be overstated because retained earnings (a component of equity) would be too high. Assets would be overstated because the supplies asset account would not have been reduced for the supplies used.

In Preparing Its 2014 Adjusting Entries, the ZigZag Ltd Forgot