Explanation:

An accounting policy decision refers to the choice made by a business entity regarding the methods and principles it adopts in preparing and presenting its financial statements. The selection of an inappropriate accounting policy decision can have significant consequences for the performance and financial position of a business entity.

Effects of an Inappropriate Accounting Policy Decision:
An inappropriate accounting policy decision can result in the following effects:

1. Overstating the performance and financial position:
When an inappropriate accounting policy decision is made, it can lead to an overstatement of the performance and financial position of a business entity. This means that the financial statements may show a higher level of profitability, assets, and equity than what is actually the case. This can mislead investors, creditors, and other stakeholders into believing that the entity is performing better than it actually is.

2. Understating the performance and financial position:
Similarly, an inappropriate accounting policy decision can also result in an understatement of the performance and financial position of a business entity. This means that the financial statements may show a lower level of profitability, assets, and equity than what is actually the case. This can have negative implications for the entity as it may be perceived as performing poorly and may have difficulty attracting investors and obtaining credit.

3. Overstating the performance:
An inappropriate accounting policy decision may also result in the overstatement of the performance of a business entity while not necessarily affecting its financial position. This means that the financial statements may show higher profits or revenues, but the underlying financial position may remain unchanged. This can create a false impression of the entity's actual financial health and performance.

4. Understating the financial position:
Alternatively, an inappropriate accounting policy decision may result in the understatement of the financial position of a business entity while not necessarily affecting its performance. This means that the financial statements may show lower assets or equity, but the profitability may remain unaffected. This can give a misleading picture of the entity's financial stability and may impact its ability to secure financing or attract investors.

Conclusion:
The selection of an inappropriate accounting policy decision can have various negative effects on the performance and financial position of a business entity. It is therefore important for entities to carefully consider and select appropriate accounting policies that accurately reflect their financial performance and position.