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    Question

    A company fails to accrue wages for March that will be paid in April. The company’s year-end balance sheet liabilities:

    A And assets are understated Correct Answer Incorrect Answer
    B Are overstated and owners’ equity is understated Correct Answer Incorrect Answer
    C Are understated, and owners’ equity is overstated Correct Answer Incorrect Answer
    D Are overstated Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    Accrued expenses are incurred but not yet paid or recorded. It should have been included in the liabilities side of the balance sheet in the accrued month and as outstanding expenses in profit and loss statement. Without this entry, net income and owners’ equity are overstated, while liabilities are understated.

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