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If a company failed to make the end-of-period adjustment to move the amount of management fees that were earned from the Unearned Management Fees account to the Management Fees Revenue account, this omission would cause: Multiple Choice 9:33 An overstatement of equity An overstatement of liabilities. An understatement of liabilities. An overstatement of net income. An overstatement of assets
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Answer #1

Ans) Option no 2 will be your right answer.

Overstatement of Liabilities; The word 'Unearned' simply means that the amount is not yet earned, so the amount remains as a current liability for the company until the amount is earned. Therefore if the journal entry is not made when the amount is actually earned by the management than it remains in the Liability section resulting in overstated situation.

The transaction will still remain same at the end of the period where the 'Unearned Management Fees' will be shown at the credit side which should have changed to debit at the end of the period.

Resulting transaction should have been;

Unearned Management Fees a/c_____Dr

To Management fees Revenue a/c

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