What is the effect on the financial statements when a company fails to record depreciation expense at year-end?

A) Net income is overstated and stockholders' equity is understated.
B) Expenses are understated and stockholders' equity is understated.
C) Expenses are understated and liabilities are overstated.
D) Net income is overstated and assets are overstated.

Record Depreciation Expense

The process of allocating the cost of tangible assets over their useful lives to accurately reflect their consumption and wear and tear.

Financial Statements

The formal records of the financial activities and position of a business, individual, or other entity, presenting the results of operations and the financial status through three primary documents: balance sheet, income statement, and cash flow statement.

Net Income

The residual profits a company holds after deducting expenses, taxes, and costs from the gross income.