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Failure to prepare the adjusting entry on accrued income will understate profit.

Failure to prepare the adjusting entry on accrued income will understate profit.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Statement 1: Failure to prepare the adjusting entry on accrued income will understate profit. Statement 2: When the reduction in prepaid expenses is not properly recorded, this causes the asset accounts and expense accounts to be understated. Only Statement 1 is correct. Only Statement 2 is correct. Both statements are correct. Both statements are incorrect. Statement 1: Recording incurred but unpaid expense is an example of an accrual. Statement 2: An accrual would increase an income statement account and decrease a balance sheet account. Only Statement 1 is correct. Only Statement 2 is correct. Both statements are correct. Both statements are incorrect.
Transcribed Image Text:Statement 1: Failure to prepare the adjusting entry on accrued income will understate profit. Statement 2: When the reduction in prepaid expenses is not properly recorded, this causes the asset accounts and expense accounts to be understated. Only Statement 1 is correct. Only Statement 2 is correct. Both statements are correct. Both statements are incorrect. Statement 1: Recording incurred but unpaid expense is an example of an accrual. Statement 2: An accrual would increase an income statement account and decrease a balance sheet account. Only Statement 1 is correct. Only Statement 2 is correct. Both statements are correct. Both statements are incorrect.
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