What is the effect on the financial statements when a company fails to accrue wages expense at year-end?
A)Net income is overstated and liabilities are understated.
B)Expenses are understated and stockholders' equity is understated.
C)Expenses and liabilities are both overstated.
D)Net income is overstated and liabilities are properly reported.

Question

Quizplus · Accepted Answer

Failing to accrue wages expense at year-end would result in an understatement of liabilities (since the unpaid wages would not be recorded) and an overstatement of net income (since the wage expense would not be recognized). Therefore, choice A is the correct answer.

What Is the Effect on the Financial Statements When a Company