What Is the Effect on the Financial Statements When a Company

question 41

Multiple Choice

What is the effect on the financial statements when a company fails to accrue wages expense at year-end?

• A)Net income is overstated and liabilities are understated.
• B)Expenses are understated and stockholders' equity is understated.
• C)Expenses and liabilities are both overstated.
• D)Net income is overstated and liabilities are properly reported.

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Definitions:

Income

The financial gain that an individual or business receives, usually from employment, business activities, or investments.

Utility Function

A mathematical representation of how a particular good or set of goods generates satisfaction or utility for an individual or consumer.

Flood

An overflow of water that submerges land which is usually dry.

Insurance

A risk management tool that provides financial protection against potential losses in exchange for premium payments.