Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause
A)net income to be understated.
B)an overstatement of assets and an overstatement of liabilities.
C)an understatement of expenses and an understatement of liabilities.
D)an overstatement of expenses and an overstatement of liabilities.

Question

Quizplus · Accepted Answer

Not recording an accrued expense means the expense and the related liability are not recognized in the period in which they are incurred. This leads to an understatement of expenses (because the expense is not recorded) and an understatement of liabilities (because the obligation is not recorded), making option C correct.

Failure to Prepare an Adjusting Entry at the End of the Period