Question

If a journal entry and posting for accrued interest that incurred during this year but will be paid until next year is accidentally omitted, what would be the impact on the financial statements?

Answer 1

Answer:

The correct answer is: Net Income would be overstated and Balance Sheet liabilities would be understated.

Explanation:

The Income Statement is a report that measures a company's financial performance over a specific accounting period. The Income Statement is also known as the Profit & Loss Statement and Earnings Statement. The Income Statement reflects the company's revenues and expenses during a certain period.

Thus, if deferred interest is not recorded in the Income Statement, the Expenses and Liabilities will be understated and the Net Income would be overstated.