Answer :
Certainly! Let's understand how omitting an adjustment for salaries would affect the financial statements step-by-step.
When salaries are earned by employees but not yet recorded or paid, it means that there is an obligation to pay them in the future. This is typically recognized as a liability called "Salaries Payable."
Here's the impact of omitting this adjustment on the financial statements:
1. Liabilities on the Balance Sheet:
- If the adjustment for salaries is not made, the liability (Salaries Payable) isn't recorded.
- This means the total liabilities will be less than they should be by the amount of [tex]$83,000.
- Therefore, liabilities are understated on the balance sheet by $[/tex]83,000.
2. Net Income on the Income Statement:
- Normally, expenses reduce net income. If the salary expense is not recorded, this expense is omitted.
- This results in net income being higher than it should be because expenses are not deducted correctly.
However, the question focuses on how the balance sheet is affected, particularly by the liability not being recorded.
Given these points, the correct effect of omitting the adjustment is that:
b. Liabilities would be understated on the balance sheet for $83,000.
When salaries are earned by employees but not yet recorded or paid, it means that there is an obligation to pay them in the future. This is typically recognized as a liability called "Salaries Payable."
Here's the impact of omitting this adjustment on the financial statements:
1. Liabilities on the Balance Sheet:
- If the adjustment for salaries is not made, the liability (Salaries Payable) isn't recorded.
- This means the total liabilities will be less than they should be by the amount of [tex]$83,000.
- Therefore, liabilities are understated on the balance sheet by $[/tex]83,000.
2. Net Income on the Income Statement:
- Normally, expenses reduce net income. If the salary expense is not recorded, this expense is omitted.
- This results in net income being higher than it should be because expenses are not deducted correctly.
However, the question focuses on how the balance sheet is affected, particularly by the liability not being recorded.
Given these points, the correct effect of omitting the adjustment is that:
b. Liabilities would be understated on the balance sheet for $83,000.
