On December 31 Coleman Company receives a utility bill in th

On December 31, Coleman Company receives a utility bill in the mail for $680. Coleman Company intends to pay the bill in early January of next year. If the appropriate adjusting entry is not made at the end of the year, what will be the effect on:

(a) Income statement accounts (overstated, understated, or no effect)?

(b) Net income (overstated, understated, or no effect)?

(c) Balance sheet accounts (overstated, understated, or no effect)?

On December 31, Coleman Company receives a utility bill in the mail for $680. Coleman Company intends to pay the bill in early January of next year. If the appropriate adjusting entry is not made at the end of the year, what will be the effect on: (a) Income statement accounts (overstated, understated, or no effect)? (b) Net income (overstated, understated, or no effect)? (c) Balance sheet accounts (overstated, understated, or no effect)?

Income Statement Accounts Revenue Choose One \\ Expense: Choose One + Net Income: Choose One Balance Sheet Accounts Assets: Choose One Liabilities: Choose One Retained Earnings: Choose One

Solution

Solution - Effect on financial statement on non appropriation of utility bill

Expenses Payable entry effects only two accounts - 1) Expenses account which is shown as expenses and 2) Expenses payable account which is shown on liability side.

Hence there is no effect on assets side.

Particulars	Effect	Explanation
Income Statements
Revenue	No Effect	Recording utility bill effects only expenses side. Revenue is not effected by ommission in the expenses entry. Revenue will reflect true and fair view
Expenses	Understated	Since Expenses are not recorded hence the expenses are understated in the books of accounts.
Net Income	Overstated	Since the expenses are not recorded in the books. Income will be shown higher. If utility expenses are recorded then incone will get lower.
Balance sheet Items
Assets	No Effect	Expenses Payable entry effects only two accounts - 1) Expenses account which is shown as expenses and 2) Expenses payable account which is shown on liability side. Hence there is no effect on assets side.
Liabilities	Understated	Since the Utility Expenses are paid in next year. Accounting of expenses will show the ledger of \'Utility Expenses payable\' on liability side. But in this case, since the expenses are not recorded hence Liability side would get understated
Retained Earnings	Overstated	Net Income is overstated. Balance of net income is transferred to retained earnings. Since the net income is overstated, retained earnings would also get overstated.