Office Supplies (Not Used for Resale) Bought on Account Were

question 49

Multiple Choice

Office Supplies (not used for resale) bought on account were returned for credit and recorded with a debit to Accounts Payable and a credit to Merchandise Inventory. This error will cause:

• A) net income to be overstated.
• B) net income to be understated.
• C) no effect on net income or total assets.
• D) total assets to be understated.

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Definitions:

Prepaid Insurance

An asset account on the balance sheet representing insurance premiums that have been paid in advance and have not yet expired.

Supplies

Materials and items that are used in the day-to-day operations of a business, not directly tied to a finished product.

Liability

A financial obligation or debt that an entity owes to another party, which is expected to be paid in the future.

Unearned Revenue

Money received by a company for goods or services yet to be provided, recognized as a liability until the service or product is delivered.