X Company prepares monthly financial statements. The balance in Unearned (Deferr

Question

X Company prepares monthly financial statements. The balance in Unearned (Deferred) Revenue on October 1 is $1,018. As of October 31, $358 of the $1,018 had been earned, but the accountant failed to record the appropriate adjusting entry. What was the effect on the October 31 Balance Sheet? Total assets would be understated by $358. Retained Earnings would be overstated by $358. Total liabilities would be understated by $660. Total liabilities would be overstated by $358. Retained Earnings would be understated by $660. Total liabilities would be overstated by $660.

Explanation / Answer

Answer: Retained earnings would be understated by $358.

Liabilities Overstated $358 and net income understated $358.

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