Which of the Following Will Occur If an Adjusting Entry

question 53

Multiple Choice

Which of the following will occur if an adjusting entry to record an accrued but unrecorded liability is NOT made?

• A) Both expenses and liabilities will be understated.
• B) Both expenses and liabilities will be overstated.
• C) Expenses will be understated, but liabilities will be overstated.
• D) Liabilities will be understated, but expenses will be overstated.

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Definitions:

Retained Earnings

The portion of a business's profits not distributed to shareholders as dividends but kept back in the company for reinvestment or to pay debt.

Sustainable Growth Rate

The maximum rate at which a company can grow its sales and earnings without increasing leverage or equity financing.

External Financing

Funds a company raises from outside sources, like bank loans, issuing bonds, or equity financing from investors, to support its operations and growth.

Total Asset Turnover

A financial ratio that measures how efficiently a company utilizes its assets to generate sales.