EX 3-15 Effect of omitting adjusting entry

Accrued salaries owed to employees for December 30 and 31 are not considered in preparing
the financial statements for the year ended December 31. Indicate which items will
be erroneously stated, because of the error, on (a) the income statement for the year and
(b) the balance sheet as of December 31. Also indicate whether the items in error will be
overstated or understated.

Answer:
a. Salary expense (or expenses) will be understated. Net income will be overstated.
b. Salaries payable (or liabilities) will be understated. Owner’s equity will be
overstated.