Question

By the end of December, Jackson Company has completed work of $2,000. Jackson company has neither billed the clients nor recorded any of the revenue. If the appropriate adjusting entry is not made at the end of the year, what will be the effect on: (a) Income statement accounts (overstated, understated, or no effect)? (b) Net income (overstated, understated, or no effect)? (c) Balance sheet accounts (overstated, understated, or no effect)?

Answer 1

(A) sales revenue: understated

gross profit: understated

(B) net income: understated

(C) Retained Earnings : understated

Unearned Services: overstated

Step-by-step explanation:

(A) sales revenue will not represent the real sales attributable for the period. It will be 2,000 lower than it should be.

Ths will make gross profit be understated as well as is the difference between the sales and the COGS

(B) net income is understated as it do not include a revenue for 2,000 thus, is lower.

(C) unearned services is overstated has it should decrease by 2,000

RE is understate as will increase by the 2,00 additional net income.