Assume Select made no adjusting entry with respect to this note before preparing the financial statements at December 31,2018.What is the effect of this error on the financial statements for 2018?
A)Total liabilities are overstated.
B)Net income is overstated.
C)Owners' equity is understated.
D)Interest Payable is overstated.

Question

Quizplus · Accepted Answer

Failing to record an adjusting entry for the note payable means that the interest expense for the period has not been recognized. This oversight results in an overstatement of net income because expenses are understated. The interest expense that should have been recognized would reduce net income if properly accounted for.

Assume Select Made No Adjusting Entry with Respect to This