At the end of the fiscal year, the usual adjusting entry to prepaid insurance to record expired insurance was omitted. Which of the following statements is true?
A) Total assets at the end of the year will be understated.
B) Owner's equity at the end of the year will be understated.
C) Net income for the year will be overstated.
D) Insurance expense will be overstated.

Question

Quizplus · Accepted Answer

If the adjusting entry to record expired insurance is not made, it means that the expense of the insurance has not been recognized in the current fiscal year. Thus, the net income for the year will be overstated as expenses are understated. Neither total assets nor owner's equity will be affected by the omission of the adjusting entry.

At the End of the Fiscal Year, the Usual Adjusting