A company records the fees for legal services paid in advance by its clients in an account called Unearned Legal Fees.If the company fails to make the end-of-period adjusting entry to move the portion of these fees that has been earned to a revenue account,one effect will be:
A)An overstatement of equity.
B)An understatement of equity.
C)An understatement of assets.
D)An understatement of liabilities.
E)An overstatement of assets.

Question

Quizplus · Accepted Answer

If the company does not adjust the unearned fees to earned revenue, it will understate revenue and thus understate equity, as revenue contributes to equity.

A Company Records the Fees for Legal Services Paid in Advance