Question: In making adjusting entries at the end of its accounting
In making adjusting entries at the end of its accounting period, Chao Consulting failed to record $3,200 of insurance coverage that had expired. This $3,200 cost had been initially debited to the Prepaid Insurance account. The company also failed to record accrued salaries expense of $2,000. As a result of these two oversights, the financial statements for the reporting period will [choose one] (1) understate assets by $3,200; (2) understate expenses by $5,200; (3) understate net income by $2,000; or (4) overstate liabilities by $2,000.
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