A company replaced an engine on a vehicle and debited the amount to Repairs and Maintenance expense, rather than debiting the Vehicle account. Which of the following would occur because of this error?
A)Repairs expense would be understated.
B)Net income would be overstated.
C)Assets would be overstated.
D)Assets would be understated.

Question

Quizplus · Accepted Answer

When the company debits Repairs and Maintenance expense instead of debiting the Vehicle account, it would result in assets being understated. This is because the amount spent on replacing the engine should have been added to the cost of the vehicle (an asset account) to reflect its correct value. By expensing the amount, the cost of the vehicle remains unchanged, leading to an understatement of assets.

A Company Replaced an Engine on a Vehicle and Debited