X Company received its bill from the utility company in June and paid it in July

Question

X Company received its bill from the utility company in June and paid it in July. Its accountant failed to record the utility expense in June, but instead recorded it in July when it was paid. As a result, which of the following is true regarding

      1) total assets on June 30
      2) total liabilities on June 30
      3) net income for June

A) 1) correct;  2) correct;  3) understated
B) 1) understated;  2) overstated;  3) correct
C) 1) overstated;  2) correct;  3) overstated
D) 1) overstated;  2) overstated;  3) understated
E) 1) correct;  2) understated;  3) overstated
F) 1) understated;  2) understated;  3) correct

Explanation / Answer

option E is correct.

This is so because cash is reduced when actual expense is paid ie in July . So asset is correctly stated in June but net income is overstated as expense of June is not recorded and liability is also not recorded so liability is understated.

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