What is the effect on the financial statements when a company fails to accrue revenue earned at year-end?
A)Net income is understated and assets are understated.
B)Revenue is understated and stockholders' equity is overstated.
C)Revenue is understated and assets aren't affected.
D)Net income is understated and liabilities are overstated.

Question

Quizplus · Accepted Answer

Failing to accrue revenue earned at year-end would result in an understatement of net income and assets. This is because revenue earned should be recognized in the period in which it is earned, regardless of when payment is received. If the revenue is not accrued, it will not be reflected on the income statement, leading to an understatement of net income. Additionally, the omission of the revenue will result in an understatement of assets, as the cash or accounts receivable that would be generated from the recognized revenue will not be reflected on the balance sheet.

What Is the Effect on the Financial Statements When a Company