Failure to Record a Liability Will Probably

question 92

Multiple Choice

Failure to record a liability will probably

• A)result in an overstated net income.
• B)result in overstated total liabilities and owner's equity.
• C)have no effect on net income.
• D)result in overstated total assets.

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Definitions:

Margin of Safety

Margin of Safety represents the difference between actual sales and break-even sales, indicating the amount by which sales can decrease before a business incurs a loss.

Break-Even Point

The point at which total costs equal total revenues, indicating that a business is not making a profit but also not incurring a loss.

Variable Cost

Costs that vary in direct proportion to changes in a business’s level of activity or volume of output produced, such as materials and labor.

Differential Cost

The difference in cost between two alternative decisions or scenarios.