Asked by Brianna Weidaman on Jun 25, 2024
Verified
At January 31, the end of the first month of the year, the usual adjusting entry transferring expired insurance to an expense account is omitted. Which items will be incorrectly stated, because of the error, on
(a) the income statement for January and
(b) the balance sheet as of January 31? Also indicate whether the items in error will be overstated or understated.
Insurance
A financial product sold by insurance companies to safeguard against financial losses from specific risks, such as accidents, theft, or natural disasters.
Adjusting Entry
An accounting entry made in the journals at the end of an accounting period to allocate income and expenditure to the period in which they actually occurred.
Income Statement
A financial statement that reports a company's financial performance over a specific accounting period, listing revenues and expenses to show net profit or loss.
- Comprehend the procedure and significance of making adjusting entries in financial accounting.
- Outline the effects that not performing adjusting entries have on financial statements.
Verified Answer
(or expenses) will be understated. Net income will be overstated.
(b)Prepaid insurance
(or assets) will be overstated. Owner's equity will be overstated.
Learning Objectives
- Comprehend the procedure and significance of making adjusting entries in financial accounting.
- Outline the effects that not performing adjusting entries have on financial statements.
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