Question

Can someone please explain me in detailed why the answer are those

I am so confused, and also how should I solve this type of "if omitted" question type (What's your step of solving them?)

Altele asser 15. Assume the adjusting entry for prepaid insurance (related to Allstate) is mistakenly omitted What is the effect of this omission on the following accounts. Write either Overstated, Understated, or No Effect. 126 Revenues thetertitel , none Expenses Thertitel.imelerstatel Assets trderstatest averstaiteel Liabilities baret ☆ Owners equity to patect senstabell emittel. 77e

Answer 1

Adjustment Entry ommited

Insurance expense    Dr xxxxxx

Prepaid expense         CR                xxxx

Insurance expense is P/L item

Prpaid insurance is an Balance sheet item under current asset

effect of ommision is explained as under

Revenue no effect becuase it affect only expense

Expenses is understated because Insurance expense is not recognized

Assets is overstated because prepaid expenses is not reduced

Liabilities No effect

Equity is oversted because net income is overstated on account of insurance expense not recognized