If a company fails to make an adjusting entry for prepaid expense, the assets will be overstated. Assume the prepaid expense is initially recorded as an asset.

Question

Quizplus · Accepted Answer

If the company fails to make an adjusting entry for prepaid expense, the asset account will still reflect the full prepaid amount, which means that the assets will be overstated. This is because the prepaid expense should have been recognized as an expense during the period to which it relates, and failing to make an adjusting entry means that the expense is not being properly recognized.

If a Company Fails to Make an Adjusting Entry for Prepaid