The accountant failed to make the adjusting entry to record the unpaid wages of its employees as of December 31.This error will cause
A)an overstatement of assets, liabilities, and owners' equity
B)an understatement of expenses, liabilities, and owners' equity
C)an understatement of liabilities and an overstatement of owners' equity
D)an understatement of assets and liabilities

Question

Quizplus · Accepted Answer

Failing to record unpaid wages results in liabilities (wages payable) being understated because the expense has not been recognized. Consequently, owners' equity is overstated because expenses reduce net income, which in turn reduces owners' equity. Assets are not directly affected by this error.

The Accountant Failed to Make the Adjusting Entry to Record