The accountant of Newton Legal Services failed to make an adjusting entry for supplies that had been used for the year. Assume the supplies were initially recorded as an asset. Which of the following statements is true?
A) The total liabilities will be overstated.
B) The equity will be understated.
C) The total assets will be overstated.
D) The total assets will be understated.

Question

Quizplus · Accepted Answer

Failing to adjust for used supplies means the supplies expense is not recorded, and the supplies asset account remains too high. This results in total assets being overstated because the expense that should reduce equity (through reduced net income) and consequently reduce the supplies asset is not recorded.

The Accountant of Newton Legal Services Failed to Make an Adjusting