Identify the effect (a through h) that omitting each of the following items would have on the balance sheet.
-Depreciation on equipment was not recorded.
A)Assets and owner's equity overstated
B)Assets and owner's equity understated
C)Assets overstated and owner's equity understated
D)Assets understated and owner's equity overstated
E)Liabilities and owner's equity overstated
F)Liabilities and owner's equity understated
G)Liabilities overstated and owner's equity understated
H)Liabilities understated and owner's equity overstated

Question

Quizplus · Accepted Answer

Depreciation expense reduces the book value of assets (equipment, in this case) and decreases net income, which in turn reduces owner's equity. If depreciation is not recorded, both assets and owner's equity would be overstated because the expense that should reduce them is not recognized.

Identify the Effect (A Through H) That Omitting Each of the Following