Throughout an accounting period,the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees.If the accountant fails to make the end-of-period adjusting entry to record the portion of these fees that has been earned,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 net income.

Question

Quizplus · Accepted Answer

If the adjusting entry is not made, the earned portion of the fees will not be recognized as revenue, leading to an understatement of equity since revenue increases equity.

Throughout an Accounting Period,the Fees for Legal Services Paid in Advance