Question

A company forgot to record accrued and unpaid wages of $500,000 at the end of period. What world be the impact of this oversight? a. Understate net income by $500,000. b. Overstate net income by $500,000. c. Have no effect on net income. d. Understate assets by $500,000.

Answer 1

Explanation:

1. Business

Any legal action that is done in order to earn income or profit is called business. It includes the production of goods and services, purchase and sale of goods and services, banking, insurance, education transportation, and any other trading activity etc.

Capital= Assets – Liability

2. Trade

Purchase and sale of goods and services in order to earn profit is called trade.

Browse more Topics under Introduction To Accounting

Meaning of Accounting

Qualitative Characteristics, Objectives, and Roles of Accounting

3. Profession

Any work done in order to earn profit which necessarily requires prior training and education is called a profession. For example doctors, lawyers, engineers etc..

4. Proprietor

The person who invests capital in the business and entitled to have all profits and losses of the business is called proprietor or owner of the business. The nature of proprietor depends upon the type or nature of the business organization. In a sole trade business, sole trader is a proprietor, in a partnership firm, partners or proprietor and in company shareholders are proprietors.

5. Capital

The amount of cash, goods or assets which is initially invested by proprietor while commencing business is called capital. It is invested to earn profits. In other words, the excess of assets over liability is capital.

6. Assets

All the resources of business having economic value are called assets. These resources help the business to earn a profit and have future value. These are important for running a business and are in the possession of businessman. These are of two types: –

a. Fixed assets

The assets which are used by business for a long time are called fixed assets or non-current assets. These are continued to be used by the business for a period of more than one year. For example:- land ,building ,plant, machinery ,furniture ,vehicle etc.