What Is the Effect on the Financial Statements When a Company

question 59

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.Salary expenses that are not accrued result in expenses and liabilities being under-stated.Understated expenses result in overstated net income.

---

Definitions:

Legitimacy

The recognized right or acceptance of an authority, rule, or agreement as valid and proper.

Authority

The legitimate or socially approved use of power within a given role, institution, or situation.

Subsistence groups

Communities or social groups that rely on natural resources and their immediate environment for their food, shelter, and clothing, often through hunting, gathering, fishing, or subsistence agriculture.

Distribution

The way in which something is shared out among a group or spread over an area.