(L.O. 5) The failure to properly record an adjusting entry to accrue a revenue item will result in an:

a. understatement of revenues and an understatement of liabilities.

b. overstatement of revenues and an overstatement of liabilities.

c. overstatement of revenues and an overstatement of assets.

d. understatement of revenues and an understatement of assets.

Approach and Explanation: Write down the adjusting entry to record an accrued revenue. Analyze the effects of the entry. This will help you to determine the effects of the failure to properly make that entry.

Dr. Assets xx Cr. Revenues xx This entry increases assets and revenues. Therefore, the failure to make this entry would result in an understatement of assets and an understatement of revenues. (Solution = d.)