The auditors informed the company that the provision for long service leave was understated by $100 000 at 30 June 2012 and that the account should be adjusted.The company adjusted the account so that:

Question

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The provision for long service leave is a liability for the company, as it represents an obligation to pay employee's entitlements in the future. Therefore, adjusting the account to reflect the true amount of the liability will increase the company's overall liabilities. This adjustment will also decrease the company's profit, as the increase in the liability represents an expense for the company. Therefore, choice A is the best answer.

The Auditors Informed the Company That the Provision for Long