ICAEW AF · Chapter 8 · Question 4 of 9
A business forgot to record an accrual for a telephone bill at the year end. What is the effect of this omission on the financial statements?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Profit is overstated and current liabilities are understated
Explanation
An accrual records an expense that has been incurred but not yet paid, with a corresponding liability. If it is omitted, the expense is too low, so profit is overstated. The amount owed is not recorded, so current liabilities are understated.
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