Picaroon's Ltd. owes $100 interest each month on a bank loan, payable the first of every month. The company's year-end is December 31, 2018, and adjusting entries are made annually. The company's bookkeeper decides not to record this interest on December 31 since it will be paid only a day later, on January 1.

(a) Does it matter whether the interest is recorded on December 31 or January 1? Explain why or why not.

(b) If a journal entry is not made on December 31, 2018, identify which accounts, if any, will be overstated or understated and by what amount for the 2018 fiscal year. If no accounts will be affected, say so.