If a company forgets to make an adjusting entry relating to a deferred revenue, which of the following would NOT be true?
A)Liabilities would be overstated
B)Revenues would be understated
C)Retained earnings would be overstated
D)Stockholders' Equity would be understated

Question

Quizplus · Accepted Answer

If a company forgets to make an adjusting entry relating to a deferred revenue, the liabilities would be understated because the revenue received in advance would be recorded as revenue instead of a liability. Additionally, revenues would be overstated because the revenue received in advance would be recorded as revenue without being earned yet. Stockholders' equity would also be overstated because the income statement would reflect higher revenues and net income, which would flow through to retained earnings. However, retained earnings would not be overstated because it is a component of stockholders' equity and would be impacted by the overstatement in revenues.

If a Company Forgets to Make an Adjusting Entry Relating