7. If the accountant failed to make the end of period adjustment to remove from the Prepaid
Expense account the amount of expenses incurred, the omission would cause an
overstatement of Net Income.
The correct answer is T. If do the adjustment, it is Dr. Expense Cr. Prepaid expense. Here, expense increase and prepaid expense decrease. Thus, Net income decrease. Without adjustment, Net income will be overstated since expense is understated. ...