Failure to Make an Adjusting Entry to Recognize Service Revenue

question 34

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:

Indirect Method

An accounting technique used to prepare the cash flow statement, adjusting net income for changes in non-cash working capital and non-operational gains and losses.

Direct Method

A method of allocating service department costs directly to production departments without considering inter-service department flows.

Accounts Receivable

Funds that clients or customers owe to a company for products or services provided but for which payment has not yet been received.

Accounts Payable

Money owed by a company to its suppliers or vendors for goods and services received, representing a liability on the balance sheet.