(L.O. 5) The failure to properly record an adjusting entry to accrue an expense will result in an:

a. understatement of expenses and an understatement of liabilities.

b. understatement of expenses and an overstatement of liabilities.

c. understatement of expenses and an overstatement of assets.

d. overstatement of expenses and an understatement of assets.

Approach and Explanation: Write down the adjusting entry to record an accrued expense. Analyze the effects of the entry. This will help you to determine the effects of the failure to properly make that entry.

Dr. Expenses xx Cr. Liabilities xx This entry increases expenses and liabilities. Therefore, the failure to make this entry would result in an understatement of expenses and an understatement of liabilities. (Solution = a.)