When making the adjustment for prepaid insurance, instead of writing off only the time that has passed, the entire policy was written off. This would:
A) overstate the assets.
B) overstate the liabilities.
C) understate net income.
D) understate expenses.

Question

Quizplus · Accepted Answer

Writing off the entire policy instead of just the portion that has passed would lead to an overstatement of expenses for the period, which in turn would understate net income.

When Making the Adjustment for Prepaid Insurance, Instead of Writing