Discuss the effect of overstating liabilities

Reference no: EM131527312

Question: 1. A deferral is the delay in recording an expense already paid, such as prepaid insurance. Wages payable is considered an accrued expense or accrued liability. Fees earned is a revenue item. Accumulated depreciation is a contra account to a fixed asset.

2. The failure to record the adjusting entry increasing Rent Revenue, $600, and decreasing Unearned Rent, $600, would have the effect of overstating liabilities by $600 and understating net income by $600.

Reference no: EM131527312

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