What is the effect on the financial statements if these adjusting entries are not made? In both of these cases, the adjusting entries record a previously recorded or unrecorded revenue for which the performance obligation is satisfied (the revenue has been earned) but for which cash or no cash has yet been received (accrued revenue). If these adjusting entries were not made, both assets and revenues would be overstated or understated on the financial statements. In addition, because revenue is overstated or understated , net income is overstated or understated . Finally, because revenue is subsequently closed to retained earnings, stockholders equity will also be overstated or understated