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.

Question

Quizplus · Accepted Answer

Failing to record service revenue receivable would result in an understatement of assets (because the receivable is not recognized), profit (because the revenue is not recognized), and shareholders' equity (because retained earnings, part of equity, would be understated due to the understated profit).

Failure to Make an Adjusting Entry to Recognize Service Revenue