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

Question

Quizplus · Accepted Answer

When a company fails to accrue interest expense at year-end, expenses are understated because the interest expense that should have been recorded is not recognized. This also results in liabilities being understated because the interest payable that should have been recorded as a liability is not recognized.

What Is the Effect on the Financial Statements When a Company