Need Accounting Help!!!?

Question

If a required prepaid adjustment had not been made, the financial statements would have been affected as follows:

(a) net income understated, assets understated, liabilities understated, and owner's equity unaffected

(b) net income understated, assets unaffected, liabilities overstated, and owner's equity understated

(c) net income overstated, assets understated, liabilities understated, and owner's equity unaffected

(d) net income overstated, assets overstated, liabilities unaffected, and owner's equity overstated


Any other help with accounting or sites I would really appreciate it!!! :)))

Answer 1

You've incurred an expense which stretches to the next fiscal period and debited prepaid expense a/c. You're supposed to release the incurred portion to expenses but you've omitted to do so. So what is the result? Your expense a/c would be understated leading to your profit/net income being overstated, and your prepaid a/c (asset) would be overstated. If net income is overstated, owner's equity would similarly be overstated cos net income ultimately flows to owner's equity. This discussion has nothing to do with liabilities, so liabilities would be unaffected.

So the answer is (d) net income overstated, assets overstated, liabilities unaffected, and owner's equity overstated.

Btw, your accounting questions should not be under Personal Finance. Since there's no accounting category, most people post these questions under General - Business & Finance. I think you'd get more answers there:-)

As to a/cg sites, try Principles of Accounting. The link is given below. It's very good.

Answer 2

(d) net income overstated, assets overstated, liabilities unaffected, and owner's equity overstated

Answer 3

Plz post this question under the accounting forum at http://www.tutorbuddy.org i will answer when you post