A company fails to record the adjusting entry for supplies it has used during the period. it will have what effect on the financial statements? Quiz Answer

A company fails to record the adjusting entry for supplies it has used during the period. it will have what effect on the financial statements?

A) Overstates liabilities

B) Understates net income

C) Overstates assets

D) Understates owner's equity

The Correct answer is C) Overstates assets

Failure to document the utilized portion of supplies on hand for the month leads to the omission of the following adjusting journal entry:

The Supplies on Hand account, which should have been decreased/credited, represents an asset.

Due to the failure to record the adjusting journal entry, total expenses will be underestimated, while total assets will be overestimated.

Options A, B, and D are incorrect because:

A) The error does not impact total liabilities. B) Net income will be overstated due to the underestimation of expenses. D) Owner's equity will be overstated due to the underestimation of expenses.