A company uses accrual-basis accounting. Shortly before the end of the current year, the company earned...
A company uses accrual-basis accounting. Shortly before the end of the current year, the company earned $1,000 by providing services to a customer but the customer does not pay the company until the following year. Nothing is recorded regarding these events, including year-end adjusting entries. This omission would cause the company’s current year
Group of answer choices
liabilities to be understated.
revenues to be overstated.
retained earnings to be overstated.
assets to be overstated.
stockholders' equity to be understated.
Homework Answers
When a company provides service and does not collect cash then the correct way of recording the transaction in the books is to book service revenue and create an account receivable. Upon recording this, the equities account increases and the assets also increases at the same time. The omission of this transaction from the books would lead to an understatement of stockholders equity and understatement of assets
Hence correct choice E (stockholder equity to be understated)
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When (or as) the company satisfies the performance
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The contract is identified with the client.
Collection is reasonably assured.
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Liabilities will be understated and revenues will be
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Assets will be understated...
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