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What is the effect of an overstatement of an expense on the trial balance?
What is the effect of an overstatement of an expense on the trial balance?
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Practice Questions
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Q1
What is the effect of an overstatement of an expense on the trial balance?
Assets will be overstated
Liabilities will be understated
Net income will be understated
Equity will be overstated
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An overstatement of an expense will lead to an understatement of net income, as expenses reduce income.
Questions & Step-by-step Solutions
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Q
Q: What is the effect of an overstatement of an expense on the trial balance?
Solution:
An overstatement of an expense will lead to an understatement of net income, as expenses reduce income.
Steps: 6
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Step 1: Understand what an expense is. An expense is money spent by a business to operate.
Step 2: Know that expenses reduce the total income of a business.
Step 3: Realize that if an expense is overstated, it means we are saying we spent more money than we actually did.
Step 4: When we overstate an expense, it makes the total expenses higher than they should be.
Step 5: Since expenses reduce income, a higher expense means lower net income.
Step 6: Therefore, an overstatement of an expense will show a lower net income on the trial balance.
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