At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following statements is true?
A) Total assets will be understated at the end of the current year.
B) The balance sheet and income statement will be misstated but the statement of owner's equity will be correct for the current year.
C) Net income will be overstated for the current year.
D) Total liabilities and total assets will be understated.

Question

Quizplus · Accepted Answer

If the adjusting entry for depreciation on equipment is omitted, net income will be overstated for the current year. This is because depreciation expense is subtracted from revenue to determine net income. Without the adjusting entry, depreciation expense is not recorded, which results in a higher net income than what it should be. The other options are incorrect because they do not accurately describe the consequences of not recording the adjusting entry for depreciation.

At the End of the Fiscal Year, the Usual Adjusting