The omission of the adjusting entry to record depreciation expense will result in an
A) overstatement of assets and an overstatement of owners' equity.
B) understatement of assets and an understatement of owner's equity.
C) overstatement of assets and an overstatement of liabilities.
D) overstatement of liabilities and an understatement of owners' equity.

Question

Quizplus · Accepted Answer

Failing to record depreciation expense leads to an overstatement of assets (since the asset's book value is not reduced) and an overstatement of owners' equity (since expenses reduce net income, and consequently, owners' equity, but are not recorded).

The Omission of the Adjusting Entry to Record Depreciation Expense