PRC-1 · Chapter 10 · Question 24 of 100
If an entity fails to record an adjusting entry for accrued wages at year-end, what is the effect on the financial statements?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Liabilities are understated and Profit is overstated.
Explanation
Failing to accrue wages means the wage expense is too low (overstating profit) and the liability for unpaid wages is not recognized (understating liabilities).
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