A legal firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to Unearned Revenue. If the legal services have been provided at the end of the accounting period and no adjusting entry has previously been made, this would cause

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Revenues would be understated because the earned revenue has not been recognized in the income statement, as it was initially recorded as a liability (Unearned Revenue). An adjusting entry is needed to transfer the amount from Unearned Revenue to Revenue.

A Legal Firm Received $2,000 Cash for Legal Services to Be