If a company forgets to make an adjusting entry relating to a deferred expense, which of the following would NOT be true?
A)Assets would be overstated
B)Expenses would be understated
C)Retained earnings would be overstated
D)Stockholders' Equity would be understated

Question

Quizplus · Accepted Answer

If a company forgets to make an adjusting entry for a deferred expense, it means the expense has not been recognized in the period it should have been. This leads to assets being overstated because the expense has not been deducted from the prepaid asset account. Expenses would be understated because the expense has not been recorded. Consequently, retained earnings would be overstated because expenses decrease net income, and lower expenses mean higher net income, which is part of retained earnings. Stockholders' equity would not be understated; it would actually be overstated due to the overstatement of retained earnings.

If a Company Forgets to Make an Adjusting Entry Relating