BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The profit reported on the income statement is ₱50, 000. However, adjusting entries have not been made at the end of the period for supplies expense of ₱500 and accrued salaries of ₱1, 300. Profit, as corrected, is:
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₱48, 200
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₱48, 700
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₱50, 500
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₱51, 800
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Explanation:
Detailed explanation-1: -If the adjusting entry is not made, assets, owner’s equity, and net income will be overstated, and expenses will be understated.
Detailed explanation-2: -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.
Detailed explanation-3: -What will happen if a business does not make an adjusting entry at the end of the period to record an accrued expense? It will cause an understatement of expenses and an understatement of liabilities.
Detailed explanation-4: -If an adjusting entry is not made for an accrued revenue, stockholders’ equity will be understated.
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