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Q.3-5TI-f

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Horngren'S Financial And Managerial Accounting
Found in: Page 144

Short Answer

Identify the impact on the income statement and balance sheet if adjusting entries for the following situations were not recorded. a. Office Supplies used, $800. b. Accrued service revenue, $4,000. c. Depreciation on building, $3,500. d. Prepaid Insurance expired, $650. e. Accrued salaries expense, $2,750. f. Service revenue that was collected in advance has now been earned, $130

In the balance sheet, unearned revenue will be overstated and equity will be understated. And in the income statement, service revenue and net income will be understated.

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Step by Step Solution

Impact on Income Statement

Earned revenue will increase the revenues of the business, not recording the adjustments will reduce the service revenue, therefore it will reduce the net income also.

Impact on Balance Sheet

Advance revenue received are recorded as unearned revenue. Not recording the adjustment for earned revenue will increase the unearned revenue (Liabilities).Also as net income is decreased, it will decrease equity (Retained earnings).

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