If an entity fails to accrue expenses at year end, the net income is:Group of answer choicesOverstatedUnderstatedUnaffectedconverted into net loss PreviousNext
Question
If an entity fails to accrue expenses at year end, the net income is:Group of answer choicesOverstatedUnderstatedUnaffectedconverted into net loss PreviousNext
Solution
If an entity fails to accrue expenses at year end, the net income is overstated.
Here's why:
-
Accrued expenses are those expenses that have been incurred, but not yet paid.
-
At the end of the accounting period, companies should record all expenses they have incurred during the period but have not yet paid, which is known as accrual basis of accounting.
-
If a company fails to accrue expenses, those expenses will not be reported in the financial statements of the period in which they are incurred.
-
This will result in higher net income for the period because expenses are understated.
-
Therefore, the net income is overstated.
Similar Questions
Which of the items below would appear in the Income Statement columns of the work sheet?Group of answer choicesEquipmentUnearned FeesPrepaid ExpenseNet Loss
when a net loss has occurred, Income summary is:*a. credited and owner’s drawing is debitedb. debited and owner’s drawing is creditedc. credited and owner’s capital is debitedd. debited and owner’s capital is credited
If unpaid expenses incurred during the accounting period are not accrued, the income for the period will be understatedGroup of answer choicesTrueFalse
Net income or loss is: Multiple choice question.all revenue minus all expenses and taxesis net sales minus cost of goods soldis operating expenses minus taxesis gross profit plus operating expenses and taxes
The Profit and Loss account showsChoose one optionFinancial position of the concernNet Profit or Net LossGross Profit or Gross LossTotal Expenses
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.