If unearned revenues are initially recorded in revenue accounts and not all the related services been performed at the end of the accounting period, the failure to make an adjusting entry will cause
A) liabilities to be overstated.
B) revenues to be understated.
C) revenues to be overstated.
D) accounts receivable to be overstated.

Question

Quizplus · Accepted Answer

Failure to make an adjusting entry for unearned revenues will result in revenues being overstated since the amount received has been recorded as revenue, even though the services have not yet been provided. The correct treatment is to record the amount received as a liability and then gradually recognize it as revenue as services are provided.

If Unearned Revenues Are Initially Recorded in Revenue Accounts and Not