The accrual of an expense was not recorded. This would:
A) overstate assets and overstate liabilities.
B) overstate expenses and understate liabilities.
C) understate expenses and overstate liabilities.
D) understate expenses and understate liabilities.

Question

Quizplus · Accepted Answer

When an expense is not recorded, it means the expense has not been recognized in the financial statements. This results in expenses being understated because the expense that should have been recorded is missing. Since the corresponding liability (or the obligation to pay) has also not been recorded, liabilities are understated as well. This does not directly affect assets in the context of the accrual not being recorded, but the net effect of under-recording expenses and liabilities is an overstatement of net income and possibly equity, not directly overstating assets in the context of this question.

The Accrual of an Expense Was Not Recorded