The accountant for Wilson Consulting Company failed to make an adjusting entry to record $3,000 of unearned service revenue that has now been earned.Which of the following is TRUE?
A) Total liabilities are overstated.
B) Total liabilities are understated.
C) Total assets are overstated.
D) Total assets are understated.

Question

Quizplus · Accepted Answer

CWhen the accountant fails to record $3,000 of unearned service revenue that has now been earned, the liability account (unearned service revenue) remains higher than it should be, leading to an overstatement of total liabilities. Similarly, because the revenue has not been recognized, the assets (typically cash or accounts receivable) associated with the earned revenue are also overstated, as the revenue would increase assets when recognized.

The Accountant for Wilson Consulting Company Failed to Make an Adjusting