What happens to the books if an adjusting entry is not made for accrued expenses?

When an adjusting entry for accrued expenses is not made, it means that expenses incurred during the accounting period are not recorded. This omission directly impacts the financial statements, particularly the income statement.

In the absence of recognizing these expenses, net income will increase because expenses that should have been deducted to calculate net income are left out. Since net income is calculated by subtracting total expenses from total revenues, failing to account for accrued expenses results in a higher net income figure than what is accurate. This misrepresentation can lead to significant misunderstandings about the profitability and financial health of the business.

While there may be effects on other accounts, the primary consequence of not making an adjusting entry for accrued expenses is the overstatement of net income, which can have ripple effects on retained earnings and other financial metrics in future periods. However, the most immediate and clear outcome is the distortion of net income as described.