Question

If an adjustment for salaries earned but not recorded or paid in the amount of $85,000 were to be omitted, how would this affect the financial statements?

a.Assets would be understated on the balance sheet for $85,000.

b.Expenses would be overstated on the income statement by $85,000.

c.Liabilities would be understated on the balance sheet for $85,000.

d.Net income would be understated on the income statement by $85,000.

Answer 1

Omitting an $85,000 adjustment for salaries earned but not paid would result in an understatement of liabilities on the balance sheet and an overstatement of net income on the income statement.

Step-by-step explanation:

If an adjustment for salaries earned but not recorded or paid in the amount of $85,000 were to be omitted, this error would affect the financial statements as follows:

Liabilities

would be understated on the balance sheet for $85,000. When adjustments for salaries that have been earned but not yet paid are omitted, the company fails to recognize a liability that it has incurred. This omission would mean that the salaries expense is not recorded on the

income statement

, which would lead to the

net income

being overstated by $85,000 as the actual expense has not been deducted from the revenues.

In summary, the correct answer is that liabilities would be understated on the balance sheet and net income would be overstated on the income statement by the amount of the salaries earned but not paid or recorded.