Explain how over and under billings are represented on the balance sheet.

Question

Question

Answer 1

Answer #1

Over billings

Over billings increase the Accounts Receivable on the Current Assets of the Balance Sheet
Also Retained Earnings will be Over stated due to higher net income during the year.
Over billings increase Revenue for the year and thereby higher net income which is transferred to Retained Earnings.
Overall Assets and Stockholders equity are overstated

Under billings

Under billings reduce the Accounts Receivables/Cash balance on the Current Assets of the Balance Sheet. They will affect the cash flow of the firm
Also Retained Earnings will be under stated due to lower net income during the year
Under billings reduce Revenue for the year and thereby lower net income which is transferred to Retained Earnings
Overall Assets and Stockholders equity are understated

Answer 2

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