At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted.Which of the following statements is true?
A)Salary Expense for the year is overstated.
B)Liabilities at the end of the year are understated.
C)Assets at the end of the year are understated.
D)Shareholders' equity at the end of the year is understated.

Question

Quizplus · Accepted Answer

When the adjusting entry for accrued salaries is omitted, the salaries expense is not recorded in the period in which the employees earned the salaries. This means that liabilities (salaries payable) are not recorded and thus are understated. The expense not being recorded also means that expenses are understated, leading to an overstatement of net income and, consequently, shareholders' equity. However, the correct statement regarding the omission is that liabilities are understated.

At the End of the Fiscal Year, the Usual Adjusting