Final answer:
If a company debited prepaid insurance when it paid for a one-year insurance policy and does not record any year-end adjusting entries, it would result in expenses being understated on the company's financial statements.
Step-by-step explanation:
If a company debited prepaid insurance when it paid for a one-year insurance policy and does not record any year-end adjusting entries, it would result in expenses being understated. When an expense is debited at the time of payment, it represents the full amount paid for the insurance policy. However, a portion of the prepaid insurance should be recognized as an expense over time to accurately reflect the monthly usage of the insurance policy. Without adjusting entries, the company would not properly allocate the prepaid insurance expense over the course of the year, resulting in expenses being understated on the company's financial statements.
Learn more about Expenses