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 $1,297. As of October 31, $466 of the $1,297 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 $466.

- Retained Earnings would be understated by $831.

- Total liabilities would be overstated by $466.

- Retained Earnings would be overstated by $466.

- Total liabilities would be understated by $831.

Total liabilities would be overstated by $831.

Explanation / Answer

Accounting entry for recognition of deffered revenue is

Deffered revenue A/c Dr. $466

To Revenue A/c $466

Thus Total liabilities  would be overstated by $466.

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