Recently,Bon Appetite Café contracted and paid for a relatively expensive advertisement in Haute Cuisine magazine.Despite the fact that the ad will appear in Haute Cuisine three months after the end of Bon Appetite Café's current fiscal year,the Cafe's accountant recorded the disbursement to advertising expense.If no adjusting entry is made,how will this year's financial statements of Bon Appetite Café be affected?
A)Net income will be overstated and total assets will be understated.
B)Net income will be overstated and total assets will be overstated.
C)Net income will be understated and total assets will be understated.
D)Net income will be understated and total assets will be overstated.

Question

Quizplus · Accepted Answer

The expense was recorded in the current fiscal year, reducing net income, but the benefit of the advertisement will be realized in the next fiscal year. Additionally, the cash payment reduces total assets.

Recently,Bon Appetite Café Contracted and Paid for a Relatively Expensive