Final answer:
Failing to adjust Accounts Receivable on the balance sheet results in overstated assets and understated equity, as the assets remain inflated and the corresponding revenue is not recorded, affecting equity.
Step-by-step explanation:
Impact of Not Adjusting Accounts Receivable on the Balance Sheet
When an adjusting entry for Accounts Receivable (AR) is not made on the balance sheet, this generally leads to an overstated assets and understated equity situation. The reason is that the revenue that would be recorded when the AR is adjusted is not acknowledged, while the AR still shows as an asset, thus inflating the company's total assets. Meanwhile, since the revenue isn't recorded, the equity – which includes retained earnings that would normally increase with the recorded revenue – remains lower than it should be. If this revenue relates to the current period, it means that the assets are not reduced by the amount still owed by customers, and net income and therefore equity are not increased accordingly.
Therefore, the correct option from the given choices would be (a) Overstated assets, understated equity.