Failure to record the adjusting entry for depreciation will overstate assets on the balance sheet.

Question

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Depreciation is the process of allocating the cost of a long-term asset over its useful life. Failure to record the adjusting entry for depreciation will result in the overstatement of the value of the asset on the balance sheet, because the asset's cost has not been reduced by the amount of depreciation that should have been recorded. This overstatement of assets will also result in an overstatement of net income on the income statement, because expenses (such as depreciation) have not been properly recognized.

Failure to Record the Adjusting Entry for Depreciation Will Overstate