The accountant of Reliable Consulting, Inc. failed to make an adjusting entry to record $6,000 for unearned service revenues that were earned before the end of the fiscal year. Assume the company initially recorded a liability. Which of the following statements is true?

A. The total assets will be overstated.

B. The total liabilities will be understated.

C. The total liabilities will be overstated.

D. The total assets will be understated.

The correct answer is C. The total liabilities will be overstated.

Explanation:

The omission of liabilities is the lack of voluntary, involuntary or intentional registration to not register an obligation for fraudulent purposes or to make up the financial statements.

Liabilities not declared or omitted by the taxpayer justify the equity difference that will be presented in a tax return.

Recall that there is a capital difference when the increase in liquid assets from one year to another is greater than the income or profit obtained by the taxpayer.

Among the many justifications that may exist for equity differences that are almost always presented, is the omission of liabilities in any of the two taxable periods compared. When liabilities are omitted, liquid assets increase, an increase that may cause the difference in assets.

Recall that the equity comparison is made between liquid assets of two consecutive years, and liquid equity is the result of subtracting liabilities to assets or gross equity, so it is hardly logical that if some liabilities were not declared, the resulting liquid equity it is greater as a result of having been affected by a minor liability due to the omission.