What is the typical outcome if an accountant fails to record an adjusting entry for accrued expenses?
Practice Questions
1 question
Q1
What is the typical outcome if an accountant fails to record an adjusting entry for accrued expenses?
Overstated assets
Understated liabilities
Overstated revenues
Understated equity
Failing to record an adjusting entry for accrued expenses results in understated liabilities, as the expenses incurred are not recognized.
Questions & Step-by-step Solutions
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Q
Q: What is the typical outcome if an accountant fails to record an adjusting entry for accrued expenses?
Solution: Failing to record an adjusting entry for accrued expenses results in understated liabilities, as the expenses incurred are not recognized.
Steps: 5
Step 1: Understand what accrued expenses are. These are expenses that a company has incurred but has not yet paid for.
Step 2: Know that adjusting entries are necessary to ensure that all expenses are recorded in the correct accounting period.
Step 3: Realize that if an accountant does not record an adjusting entry for these accrued expenses, the company will not show these expenses in its financial records.
Step 4: Understand that this leads to understated liabilities, meaning the company appears to owe less money than it actually does.
Step 5: Recognize that this can mislead stakeholders about the company's financial health, as it shows a better profit than reality.
