Failure to Make an Adjusting Entry to Recognize Service Revenue

question 154

Multiple Choice

Failure to make an adjusting entry to recognize service revenue receivable would cause which of the following?

• A) an overstatement of assets, profit, and shareholders' equity.
• B) an overstatement of assets and shareholders' equity and an understatement of profit.
• C) no effect on assets, liabilities, profit, nor shareholders' equity.
• D) an understatement of assets, profit, and shareholders' equity.

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Definitions:

Accounts Receivable

Funds that customers owe a company for goods or services that have already been delivered or utilized, but payment has not yet been received.

Fees Earned

Income earned by a company for services provided to clients, usually recorded as revenue in the income statement.

Accounts Payable

Liabilities to creditors for goods and services received that have not yet been paid for.

Accounts Payable

Money owed by a business to its suppliers or creditors for goods and services purchased on credit.