In preparing its 2019 adjusting entries, Zena Ltd forgot to adjust the Office Supplies (asset) account for the amount of supplies used during the year. As a result of this error:
A) 2019 profit is understated, the balance of equity is understated, and assets are understated.
B) 2019 profit is overstated, the balance of equity is correct, and assets are overstated.
C) 2019 profit is overstated, the balance of equity is overstated, and assets are correctly stated.
D) 2019 profit is overstated, the balance of equity is overstated, and assets are overstated.

Question

Quizplus · Accepted Answer

Not adjusting for the supplies used means expenses are understated, leading to an overstatement of profit. This overstatement of profit inflates the balance of equity. Since the supplies used were not accounted for, the asset account (Office Supplies) remains overstated.

In Preparing Its 2019 Adjusting Entries, Zena Ltd Forgot to Adjust