PRC-1 · Chapter 10 · Question 91 of 100
A business forgot to adjust for an accrued telephone expense of Rs. 500 at year-end. What is the impact on the financial statements?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Net profit is overstated; Liabilities are understated.
Explanation
By missing the accrued expense, expenses are too low (which overstates net profit) and the obligation to pay is omitted (which understates liabilities).
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