Question

the accountant of newton legal services failed to make an adjusting entry for supplies that had been used for the year. assume the supplies were initially recorded as an asset. which of the following statements is true?

a. the equity will be understated.

b. the total liabilities will be overstated.

c. the total assets will be understated.

d. the total assets will be overstated.

Explanation:

When an adjusting entry for used supplies (supplies expense) is not made, the Supplies asset account is not reduced (credited) as it should be. So the total assets (which include Supplies) will be overstated because the used supplies are still being counted as an asset instead of being expensed. Equity would be overstated (not understated) because expenses are understated, total liabilities are not affected by this error, and total assets are overstated (not understated).

Answer:

D. The total assets will be overstated