Failure to record accrued interest on a note payable causes a company to:
A)overstate interest income.
B)understate interest expense.
C)understate retained earnings.
D)overstate interest expense and understate retained earnings.

Question

Quizplus · Accepted Answer

Failure to record accrued interest on a note payable results in understating interest expense because the expense has been incurred but not recorded. This also means that the liabilities are understated, but it does not directly affect retained earnings until the expense is recognized.

Failure to Record Accrued Interest on a Note Payable Causes