An asset / revenue adjustment may occur when a company performs a service for a customer but has not yet billed the customer. Office supplies on hand, $100. Example #4 A Company failed to record accrued wages of $5,000 at the end of the period. Example 1: Company ABC leases its building space to a tenant. A company’s net income will increase when revenues are accrued or when expenses are deferred and decrease when revenues are deferred or when expenses are accrued. The tenant agreed to pay monthly rental fees of $2,000 covering a period from the 1st to the 30th or 31st of every month. Credit to Revenue. B) The assets at the end of the period will be understated. A is the right answer because failure to record accrued expense means liability is not entered in journal hence working capital will appreciate. When the cash is received at a later time, an adjusting journal entry is made to record the payment for the receivable account. 14. Assets will be understated and revenues will be understated. asked May 14, 2016 in Business by Webster A) The assets at the end of the period will be overstated. Adjusting Entries – Why Do We Need Adjusting Journal Entries? The revenue is recognized through an accrued revenue account and a receivable account. Example 1 – Revenue Goes From Accrued Asset to Accrued Revenue. 2. 1 Answer to If a real estate company fails to accrue commission revenue, a. liabilities are overstated and owners’ equity is understated. 12. If a company fails to pay accrued taxes by a specific due date, additional penalties and interests may be applied to the total amount owed. Understate retained earnings and overstate revenues. The accountant records this transaction as an asset in the form of a receivable and as revenue because the company has earned a revenue. c. revenues are understated and net income is overstated. a. Accrued revenues, $5,000. b. assets are understated and net income is understated. Note: Working capital = Current Aseest - Current liability. a. b. Liabilities will be understated and equity will be overstated B) Liabilities will be overstated and revenues … Adjusting entries are required at the end of each fiscal period to align the revenues and expenses to the “right” period, in accord with the matching principle Matching Principle The matching principle is an accounting concept that dictates that companies report expenses at the same time as the revenues they are related to. If a company fails to adjust an Unearned Rent Revenue account for rent that has been recognized, what effect will this have on that month’s financial statements? In recording adjusting entries, Reagan Financial Advisors failed to record the adjusting entries for the following situations. That means the adjusting entry should have been: Debit to Accounts Receivable and. In simple terms, accrued taxes refers to taxes assessed against a company that have not yet been paid, whether those taxes are on the company's earned revenue or on the value of any property the company owns. b. If a company fails to adjust for accrued expenses then what effect will this have on that month's financial statements? Accrued revenues are revenues that are earned but are still collectible. A) Expenses will be overstated and equity will be understated. Liabilities will be understated and revenues will be understated. Adjusting entries for accrued revenues always includes a debit to a liability account and a credit to a revenue account. An accrued expense is the expense that has been incurred (goods or services have been consumed) before the cash payment has been made. Adjusting entries aim to match the recognition of revenues with the recognition of the expenses used to generate them. More Examples: Adjusting Entries for Accrued Income. 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