If a company fails to to adjust a deferred revenue recorded as a liability,revenues will be overstated on the income statement.

Question

Quizplus · Accepted Answer

If a company fails to adjust a deferred revenue recorded as a liability, revenues will be understated on the income statement, not overstated. This is because the revenue has not actually been earned yet, as it is still a liability. Only when the company fulfills its obligation and delivers the product or service will the revenue be recognized as earned.

If a Company Fails to To Adjust a Deferred Revenue