Final answer:
If a company fails to record the expiration of prepaid insurance, net assets would be overstated and current expenses would be understated. Similarly, not recording the depreciation of fixed assets and the use of supplies would result in understated net assets and expenses.
Step-by-step explanation:
If a company fails to record the expiration of prepaid insurance, year-end net assets would be overstated and current expenses would be understated.
Prepaid insurance is an asset that represents insurance coverage paid in advance. As time passes, the prepaid insurance amount decreases because the coverage is being used up. If this reduction is not recorded, the company's assets at the end of the year will be higher than they actually are, leading to an overstatement.
On the other hand, if the company fails to record the depreciation of fixed assets and the use of supplies, both the net assets and expenses would be understated. Depreciation represents the allocation of the fixed asset's cost over its useful life, and supplies are considered as expenses as they are used up in the business operations. Failing to record the reduction in both cases would result in an underestimate of expenses and an overestimate of net assets.