A Company Forgot to Make an Adjusting Entry to Record

question 128

True/False

A company forgot to make an adjusting entry to record incurred wages that were unpaid at the end of the period. This would understate Total Liabilities and overstate Retained Earnings on the Balance Sheet.

---

Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term and long-term obligations, calculated as current assets divided by current liabilities.

Current Assets

Resources owned by a company that are expected to be converted into cash, sold, or consumed within a year or within the operating cycle of the business.

Total Liabilities

The aggregate of all debts and financial obligations a company owes to outside parties.

Adjusting Journal Entries

Entries made in accounting records at the end of an accounting period to allocate income and expenses to the period in which they actually occurred.