Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause
A) net income to be understated.
B) an overstatement of assets and an overstatement of liabilities.
C) an understatement of expenses and an understatement of liabilities.
D) an overstatement of expenses and an overstatement of liabilities.

Question

Quizplus · Accepted Answer

Failure to prepare an adjusting entry at the end of the period to record an accrued expense would result in understating expenses and liabilities as the expense has been incurred but not yet paid, thus increasing the amount of liabilities. This will ultimately result in an understatement of net income. An overstatement of assets and liabilities would occur if a transaction was recorded incorrectly at the time of the transaction, not because of a failure to prepare an adjusting entry.

Failure to Prepare an Adjusting Entry at the End of the Period