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If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show: Assets, net income, and equity were overstated.
What happens if equity is overstated?
By including fictional asset expenses or manufactured revenues, overstating assets and revenues presents a corporation as being financially stronger than it actually is. Excluding expenses or debt, commitments reveal understated liabilities and costs. Both strategies boost the company's equity and net value.
What causes assets to be overstated?
Due to inaccurate valuations or evaluations at the end of the year, assets may be inflated. It's possible for the value of inventories or trade receivables to be increased in order to overestimate current assets. It might involve inappropriate evaluation or depreciation methods for long-term assets.
Therefore, if a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show: Assets, net income, and equity were overstated.
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