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Adjusting Entries in Accounting

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Questions and Answers

What is the effect of forgetting to record the adjusting entry for revenues earned but not yet collected on the accounting equation?

Liabilities are understated.
Shareholders' equity is understated. (correct)
Liabilities are overstated.
Assets are understated. (correct)

Which financial statement is directly impacted by the error in the adjusting entry?

Statement of Retained Earnings
Statement of Cash Flows
Balance Sheet
Income Statement (correct)

What is the essential principle behind the need for adjusting entries?

To balance the accounting equation.
To reflect the correct amount of cash on hand.
To accurately reflect the company's financial position at the end of the period.
To ensure the matching principle is followed. (correct)

If the company mistakenly recorded the adjusting entry for unearned revenue as earned revenue, how would it impact the accounting equation?

<p>Assets overstated, Liabilities understated, Shareholders' equity overstated (C)</p> Signup and view all the answers

Which of the following adjusting entries could have been made to correct Miss Take's error?

<p>Debit: Accounts Receivable, Credit: Revenue (B)</p> Signup and view all the answers

Flashcards

Adjusting Entry

An entry made at the end of an accounting period to update account balances.

Understated Assets

When total assets are lower than they should be recorded due to an error.

Shareholders' Equity

The residual interest in the assets of a company after deducting liabilities.

Effects of Revenue Error

Impacts financial statements when revenues earned are not recorded, affecting assets and equity.

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Variable Understatements

Financial reporting variations resulting from errors in recording transactions.