Question

30. If the adjusting entry to record the accrued interest revenue is omitted:

Select one:

a. net income would be overstated and liabilities would be overstated.

b. net income would be understated and assets would be understated.

c. net income would not be affected but assets would be overstated.

d. no impact on both net income and assets.

Answer 1

An adjusting entry of accrued interest revenue will be debit to asset side account of interest receivable account and credit to revenue account as interest income account. Therefore asset and income statement will increase by recording the journal entry.

Therefore if the journal entry will be omitted then it will understate the net income as well as understate the asset as by recording the journal entry both these would have increased.

Therefore the correct option is B

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