If unearned revenues are initially recorded in revenue accounts and not all the related services been performed at the end of the accounting period then 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

Unearned revenues are those that have been received in advance but the related services have not yet been performed. Initially, these revenues are recorded as a liability on the balance sheet, but they are also recorded in revenue accounts on the income statement. If an adjusting entry is not made at the end of the accounting period to reflect the portion of the unearned revenue that has not yet been earned, then the revenue account will be overstated. This is because revenue is being recognized for services that have not yet been performed, which inflates the company's revenue and net income. Therefore, the correct choice is C, revenues to be overstated.

If Unearned Revenues Are Initially Recorded in Revenue Accounts and Not