Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause
A) profit 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

An accrued expense is an expense that has been incurred but not yet paid. Failing to record it would mean that the expense is not recognized in the financial statements, leading to an understatement of expenses. Since the corresponding liability (the obligation to pay the expense) is also not recorded, liabilities would be understated as well.

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