Failure to record a liability will probably
A)result in overstated profit.
B)result in overstated total liabilities and shareholders' equity.
C)have no effect on profit.
D)result in overstated total assets.

Question

Quizplus · Accepted Answer

Failure to record a liability will result in understatement of total liabilities and equity and overstated profit. This is because the liability represents an obligation to pay a certain amount in the future, which should be reflected in the financial statements even if no cash has been paid out yet. By not recording the liability, the company is effectively overstating their earnings because they are not accounting for this expense.

Failure to Record a Liability Will Probably