i Safari File Edit View History Bookmarks Window Help 91%-. Fri 11:46 AM aE Hamewark 3 Which Of The Follawing Is A Permanent Account? Sel. Chegg.com BusinessCourse O Meredith Milholland Menu ACCT20653:080-Intro to ACCT20653:080-Intro to Accounting-TTH Accounting-TTH My Subscriptions Courses ACCT20653:080-Intro to Accounting-TTH/ Financial: Ch 3 Accrual Basis of Business Accounting Homework 3 Financial: Ch 1: Financial Accounting and Business Decisions ASSIGNMENT NAVIGATION Financial: Ch 2: QUESTION 8 Not complete Marked out of 1.000 FRag question Processing Accounting In preparing its adjusting entries at the end of this year, Freedman Company neglected to accrue emplayees\' wages earned but not yet paid or recorded. 6 789 10 Financial: Ch 3: Accrual Basis of Business Accounting This error 111213 14 15 Select one: 16 1718 19 20 -Financial: Ch 4: 0 A·Overstates this year\'s net income and overstates both liabilities and retained earnings at year-end B. Understates this year\'s net income and overstates both liabilities and retained earnings at year-end C. Overstates this year\'s net income, understates liabilities at year-end, and overstates retained earnings at Understanding Financial Statements 21 22 23 24 25 year-end Financial: Ch 13: Analysis and Interpretation of Financial Statements Finish attempt.. D. Ovestates this year\'s net income and liabilities at year-end, and understates retained earnings at year-end Check Managerial: Ch 1: Overview of Managerial Accounting Previous page Next page Managerial: Ch 2: Managerial Accounting Concepts and Cost Flows Save Answers 26
Answer: Overstates this year\'s income; understates liabilities at year end; and overstates retained earnings at year end.
Reason: Most of the companies work on mercantile basis of accounting wherein all incomes and expenses pertaining to current year whether paid or not are required to be recorded. Hence, for employees\' wages earned but not paid, expense is required to be booked as this expense pertains to current year. Also, a provision for payment of this expense is to be created.
Every transaction has two impacts; one on debit side and the other on credit side. The above two transactions would have following impacts:
Expense i.e. debit balance would increase and liability for payment of accrued expense which is a liability would get created as udner:
Employee wages Dr. (shown in P&L Account as an expense)
Employee wages payable Cr. (shown in Balance Sheet as a liability).
Not recording the above transaction would decrease the expense i.e. overstate the profit and decrease the liability i.e. understate the liability. Also, since profit is overstated, retained earnings are also overstated.
2. Recording provision for payment of expense
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