Final answer:
The total assets on the balance sheet would be overstated due to the failure to record an adjusting entry for used supplies. Liabilities and equity are not directly affected by the failure to make the adjustment. Hence, the correct answer is that the total assets will be overstated.
Step-by-step explanation:
If the accountant of Zeus Legal Services fails to record an adjusting entry for used supplies, originally recorded as an asset, then the total assets on the balance sheet would be overstated. This is because supplies that have been used up should be recorded as an expense, reducing the total assets. When such an adjustment is not made, expenses are understated, and total assets remain artificially high. On the other hand, liabilities and equity are not directly affected by this omission, so options A, D, and E are incorrect.
Further understanding the concept, within a T-account framework, assets would equal the sum of liabilities and net worth (or equity). If expenses are not properly adjusted, the net worth also appears greater than it actually is, because profits are not reduced by the cost of the used supplies. Hence, the correct answer to the question is B. The total assets will be overstated.