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

Question

Quizplus · Accepted Answer

Failing to record depreciation expense at year-end will overstate the company's net income and assets since it will have an overstated value for its fixed assets that have not been properly reduced by depreciation. This will also lead to an overstatement of retained earnings and stockholders' equity.

What Is the Effect on the Financial Statements When a Company