If a company fails to adjust a Prepaid Rent account for rent that has expired,what effect will this have on that month's financial statements?
A)Failure to make an adjustment does not affect the financial statements.
B)Assets will be overstated and profit and shareholders' equity will be understated.
C)Assets will be overstated and profit and shareholders' equity will be overstated.
D)Expenses will be overstated and profit and shareholders' equity will be understated.

Question

Quizplus · Accepted Answer

If a company fails to adjust a Prepaid Rent account for rent that has expired, the assets will be overstated because the prepaid rent is still recorded as an asset. Profit and shareholders' equity will also be overstated because the rent expense, which should reduce profit, has not been recorded.

If a Company Fails to Adjust a Prepaid Rent Account