Question

At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following statements is true?
a. Total assets will be understated at the end of the current year
b. The balance sheet and income statement will be misstated but the statement of owner's equity will be correct for the current year.
c. Net income will be overstated for the current year.
d. Total liabilities and total assets will be understated.

Answer 1

Answer:

c. Net income will be overstated for the current year.

Explanation:

Depreciation is defined as the reduction in the value of an asset over the period of it's useful life.

The deductions are calculated and taken out of the asset value on the balance sheet.

The adjusting entry for depreciation at the end of year is a debit to Depreciation Expense and a credit to Accumulated depreciation.

If this entry is no passed it means that Depreciation Expense is not recognised for that year.

Net income will be overstated because generally expenses will be understated.