Identify the effect omitting each of the following items would have on the balan
ID: 2422113 • Letter: I
Question
Identify the effect omitting each of the following items would have on the balance sheet. No adjustment was made for supplies used up during the month..? Services provided to customers on the last day of the month were not billed.? An attorney has earned 1/2 of a retainer fee that was received and recorded last month. No adjustment was recorded for the amount earned.? -assets understated and and owners equity overstated -assets and owners equity overstated -liabilities understated and owners equity overstated -liabilities and owners equity understated -assets overstated and owners equity understated assets and owners equity understated -liabilities and owners equity overstated -liabilities overstated and owners equity understated
Explanation / Answer
No adjustment for supplies used up during the month:
If adjusted, supplies balance would get reduced and expense would be booked which results in reduction of profit.
As there is no adjustment,
supplies a/c gets overstated i.e., assets gets overstated and profit gets overstated i.e., owners equity gets overstated.
Effect: Assets and owners equity overstated.
Services provided but not billed:
If adjusted, Accounts Receivable balance would get increased and revenue would be booked which results in increase of profit.
As there is no adjustment,
Accounts Receivable a/c gets understated i.e., assets gets understated and profit gets understated i.e., owners equity gets understated.
Effect: Assets and owners equity understated.
No Adjustment for the amount earned:
If adjusted, Revenue would get increased and cash balance would have increased..
As there is no adjustment,
Profit gets understated i.e., owners equity gets understated and cash a/c gets understated i.e., assets gets understated.
Effect: Assets and owners equity understated.