A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31. This oversight would:
A) Overstate assets by $28,000.
B) Have no effect on net income.
C) Understate net income by $28,000.
D) Overstate net income by $28,000.
E) Understate assets by $28,000.

Question

Quizplus · Accepted Answer

If the company didn't make an adjusting entry for accrued and unpaid employee wages, the expenses will be understated, and the net income will be overstated by $28,000. This is because the company already incurred the expense for the wages, which should be recorded in the current period even if the payment is made later. As a result, the financial statements will not reflect the true financial position of the company, which can mislead the users of the financial statements. Therefore, the best choice is D, overstate net income by $28,000.

A Company Made No Adjusting Entry for Accrued and Unpaid