Question

If an adjustment for $8,600 in accrued revenues is omitted, how will this affect the financial statements? O a. Net income will be understated by $8,600. O b. There will be no effect on the financial statements. O c. Net income will be overstated by $8,600. O d. Accounts Receivable will be overstated by $8,600.

Answer 1

option " D " is correct

Explanation

Journal entry for accrued revenue on recognition (i.e when goods sold on credit ) would be

Accured revenue a/c Dr	$ 8600	-
To income a/c	-	$ 8600

1.The Debit of accured revenue would increase accounts receivable by $8600, and there by credit for income would increase by $8600.

2. Journal entry for accrued revenue adjustment ( i.e realiation from debtors/accounts receivable) would be

Cash / Bank a/c Dr	$8600	-
To Accrued revenue	-	$8600

The amount has been received either by cash or direct credit to the bank account , since an adjustment for accured revenue has been omitted , it means that the Accured revenue is still lying in our books which has not been reversed and still reflecting as receivable.

Conclusion

The balance of accured revenue is thus overstated in our financial statement by $8600.