Question

Due to an oversight, the company bookkeeper made no adjusting entry for accrued and unpaid employee wages of $24,000 on December 31. This oversight would:

a) Overstate liabilities and expenses
b) Understate liabilities and expenses
c) Overstate assets and equity
d) Understate assets and equity

Answer 1

Ignoring accrued and unpaid employee wages understates liabilities and expenses, leading to financial statements that do not accurately reflect the company's financial position.

Step-by-step explanation:

Due to an oversight, the company bookkeeper made no adjusting entry for accrued and unpaid employee wages of $24,000 on December 31. This oversight would understate liabilities and expenses. When accrued wages are not recorded, the liabilities on the balance sheet are not increased by the amount of wages owed, and the expenses on the income statement do not reflect the wage expense that has been incurred but not yet paid. This results in the company's financial statements not accurately reflecting the true financial position, as both liabilities and expenses are understated. Consequently, assets and equity would appear larger than they should be because expenses that reduce net income (and thus retained earnings, part of equity) have not been recorded.