BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Entering a depreciation adjusting entry two times
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Failure to record interest expense accrued on a note payable
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Failure to record revenue that had been earned but not billed via an adjusting entry
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Failure to record the earned portion of fees received in advance
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Detailed explanation-1: -the current ratio is overstated because the denominator is understated. Explanation: Accrued liability is recognized when there is an expense incurred but the amount is not yet paid in cash. Failure to recognize accrued liability means failure to record an expense and a current liability for the period.
Detailed explanation-2: -Overstatement of liabilities results in showing an inflated amount of expenses and obligations to the investors or stockholders. And it involves more payment of income tax by an organization. If a company is overvaluing its assets, then it would increase the owner’s equity.
Detailed explanation-3: -Explanation: If adjusting entries are not recorded it will affect net income and the balance sheet. For example, the failure to record accrued expenses will cause net income to be overstated and liabilities to be understated.
Detailed explanation-4: -It will cause an understatement of expenses due to the failure to record an expense on the income statement for the expired portion of prepaid expenses.