If the accountant for Hobson Electrical Repair Company failed to make an adjusting entry to record $5,000 of unpaid salaries, then the total expenses are understated. Specifically, salaries expense for the period would be understated by $5,000, which in turn affects net income and retained earnings on the income statement and balance sheet respectively.
Since expenses directly impact net income, failing to record the unpaid salaries means that the company's net income appears higher than it actually is, leading to an understatement of total expenses. This can also affect financial ratios and decision-making based on those financial statements.
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