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Answer :
Certainly! Let's analyze the situation step-by-step to understand how the omission of an adjustment for [tex]$89,000 in salaries would affect the financial statements:
1. Understanding the Basic Transaction:
- Salaries that have been earned but not yet recorded or paid represent expenses that the company is liable to pay. These are known as "accrued salaries."
2. Effects on Liabilities:
- Accrued salaries are a liability because the company owes this amount to its employees. If this adjustment is omitted, the company will not record this liability.
- Therefore, the liabilities on the balance sheet would be understated by $[/tex]89,000. This means the balance sheet would not reflect the true amount that the company owes to its employees.
3. Effects on Expenses:
- Salaries are considered an expense for the period in which they are earned. If not recorded, the expense figure on the income statement will not reflect this [tex]$89,000.
- So, the recorded expenses on the income statement would be understated, since $[/tex]89,000 worth of salaries has not been accounted for.
4. Effects on Net Income:
- Net income is calculated as total revenues minus total expenses. If expenses are understated by [tex]$89,000, the net income would actually be overstated because it doesn’t account for these missing expenses.
- In other words, net income shown would appear higher than it actually should be if all expenses were properly recorded.
Therefore, the omission of this salary adjustment means:
- Liabilities on the balance sheet would be understated by $[/tex]89,000.
The correct choice based on these explanations is:
- Option a (Oa): Liabilities would be understated on the balance sheet for $89,000.
1. Understanding the Basic Transaction:
- Salaries that have been earned but not yet recorded or paid represent expenses that the company is liable to pay. These are known as "accrued salaries."
2. Effects on Liabilities:
- Accrued salaries are a liability because the company owes this amount to its employees. If this adjustment is omitted, the company will not record this liability.
- Therefore, the liabilities on the balance sheet would be understated by $[/tex]89,000. This means the balance sheet would not reflect the true amount that the company owes to its employees.
3. Effects on Expenses:
- Salaries are considered an expense for the period in which they are earned. If not recorded, the expense figure on the income statement will not reflect this [tex]$89,000.
- So, the recorded expenses on the income statement would be understated, since $[/tex]89,000 worth of salaries has not been accounted for.
4. Effects on Net Income:
- Net income is calculated as total revenues minus total expenses. If expenses are understated by [tex]$89,000, the net income would actually be overstated because it doesn’t account for these missing expenses.
- In other words, net income shown would appear higher than it actually should be if all expenses were properly recorded.
Therefore, the omission of this salary adjustment means:
- Liabilities on the balance sheet would be understated by $[/tex]89,000.
The correct choice based on these explanations is:
- Option a (Oa): Liabilities would be understated on the balance sheet for $89,000.
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