Green Inc. made no adjusting entry for accrued and unpaid employee wages of $38,000 on December 31. This error would:. a. Understate assets by $38,000.
b. Overstate net income by $38,000.
c. Understate net income by $38,000.
d. Have no effect on net income.

Net profit or net income is overstated by $38000 and option B is the correct answer.

Explanation:

The adjusting entry to be made for accrued and unpaid wages would have been,

Wages expense          38000 Dr

   Wages payable           38000 Cr

This entry would record an increase in expenses of $38000 and an increase in liabilities of $38000. As the entry is omitted, the expenses of $38000 are not recorded thus the expenses in income statement are understated. An understatement of expenses means an overstatement of profit by the same amount.

Thus, net profit or net income is overstated by $38000

answer; capital structure decision;