Asked by Rimiya Sharma on May 10, 2024
Verified
What is the effect on the financial statements when a company fails to accrue wages expense at year-end?
A) Net income is overstated and liabilities are understated.
B) Expenses are understated and stockholders' equity is understated.
C) Expenses and liabilities are both overstated.
D) Net income is overstated and liabilities are properly reported.
Accrue Wages Expense
The recognition of wages incurred by employees that have not yet been paid by the company.
Financial Statements
Consolidated documents that present the financial activities and conditions of a business or entity, including the balance sheet, income statement, and cash flow statement.
Net Income
The total profit of a company after all expenses and taxes have been deducted from revenue, a key indicator of financial health.
- Absorb the implications of not applying critical adjusting entries on net income, assets, liabilities, and shareholders' equity.
Verified Answer
AR
Aileen RochaMay 11, 2024
Final Answer :
A
Explanation :
Failing to accrue wages expense at year-end would result in an understatement of liabilities (since the unpaid wages would not be recorded) and an overstatement of net income (since the wage expense would not be recognized). Therefore, choice A is the correct answer.
Learning Objectives
- Absorb the implications of not applying critical adjusting entries on net income, assets, liabilities, and shareholders' equity.