Select all that applyDetermine which of the statement(s) are correct if a Petty Cash account is not replenished at the end of the accounting period. (Check all that apply.)Multiple select question.The income statement would reflect a net income amount that was too high.Expenses would not be recorded in the period in which they were incurred.The balance sheet would show an overstated cash asset.The balance sheet would show an understated cash asset.
Question
Select all that applyDetermine which of the statement(s) are correct if a Petty Cash account is not replenished at the end of the accounting period. (Check all that apply.)Multiple select question.The income statement would reflect a net income amount that was too high.Expenses would not be recorded in the period in which they were incurred.The balance sheet would show an overstated cash asset.The balance sheet would show an understated cash asset.
Solution
The correct statements are:
- Expenses would not be recorded in the period in which they were incurred.
- The balance sheet would show an overstated cash asset.
Explanation:
If a Petty Cash account is not replenished at the end of the accounting period, the expenses that were paid out of the petty cash would not be recorded in the period in which they were incurred. This is because the replenishment of the petty cash account is what triggers the recording of the expenses.
Additionally, the balance sheet would show an overstated cash asset. This is because the petty cash account is a part of the company's total cash asset. If it's not replenished, the cash asset on the balance sheet would include cash that has actually been spent, thus overstating the amount of cash the company has on hand.
The income statement would not necessarily reflect a net income amount that was too high, as this would depend on other factors beyond just the petty cash account. Similarly, the balance sheet would not show an understated cash asset, as not replenishing the petty cash would lead to an overstatement, not an understatement, of the cash asset.
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