A company failed to recognize an accrued liability. As a result, the current ratio is:
A)understated because the denominator is overstated.
B)understated because the denominator is understated.
C)overstated because the denominator is understated.
D)overstated because the denominator is overstated.

Question

Quizplus · Accepted Answer

An accrued liability is a current liability. Failing to recognize it understates the total current liabilities, which is the denominator in the current ratio calculation, thus overstating the current ratio.

A Company Failed to Recognize an Accrued Liability