Question

Your employer has a Monday–Friday workweek; the 5-day payroll totals $20,000 each week. In 20X1, December 31 is a Thursday. Just before closing the books, you realize that no adjusting entry was made. If no correcting entry is recorded, liabilities will be understated and net income will be overstated liabilities will be overstated and net income will be overstated liabilities will be overstated and net income will be understated liabilities will be understated and net income will be understated everything will be fine. The original adjusting entry was unnecessary and no correction needs to be made.

Answer 1

If no correcting entry is recorded,

1. liabilities will be understated and net income will be overstated
2. liabilities will be overstated and net income will be overstated
3. liabilities will be overstated and net income will be understated
4. liabilities will be understated and net income will be understated everything will be fine.
5. The original adjusting entry was unnecessary and no correction needs to be made.

The correct answer is: liabilities will be understated and net income will be overstated

As the adjustment entry would have been salary expense Debit and Salaries Payable Account Credit; but it was not passed and both the expense and liability are understated which means that the Net Income would be overstated and liabilities would be understated.