question archive What is the effect on the financial statements when a company fails to accrue salaries expense at year-end? Net income is overstated and liabilities are properly reported
What is the effect on the financial statements when a company fails to accrue salaries expense at year-end? Net income is overstated and liabilities are properly reported
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What is the effect on the financial statements when a company fails to accrue salaries expense at year-end?
| Net income is overstated and liabilities are properly reported. | |
| Expenses and liabilities are both overstated. | |
| Net income is overstated and liabilities are understated. | |
| Expenses are understated and stockholders' equity is understated. |
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Ans:- Net income is overstated and liabilities are understated.
Reason:- Accrued salaries expenses means salary payable for the current year not paid .
They have failed to accrue salaries expenses , I,e, not debited in the profit & loss account , therefore , profit is overstated and since no liability has been created for outstanding salaries expenses , therefore , liability is understated.
