The accountant for Hobson Electrical Repair Company failed to make an adjusting entry to record $5,000 of unpaid salaries for the last two weeks of the year.Which of the following is TRUE?
A) Total liabilities are overstated.
B) Total liabilities are understated.
C) Total assets are overstated.
D) Total assets are understated.

Question

Quizplus · Accepted Answer

The failure to record the unpaid salaries means that the company's total liabilities are understated. The $5,000 of unpaid salaries should have been recorded as an adjusting entry at the end of the year, which would have increased the company's liabilities.

The Accountant for Hobson Electrical Repair Company Failed to Make