Final answer:
Failure to make an adjusting entry for unearned revenues that haven't all been earned at the end of the accounting period will cause inaccurate financial statements.
Step-by-step explanation:
If unearned revenues are initially recorded in revenue accounts and have not all been earned at the end of the accounting period, failure to make an adjusting entry will cause the financial statements to be inaccurate. An adjustment is necessary to properly recognize the earned portion of the unearned revenues and match it with the appropriate expenses.
For example, let's say a company receives $1,200 in advance from a customer for a year-long service. At the end of the accounting period, only three months have passed, and therefore only $300 of the revenue has been earned. If no adjusting entry is made, the entire $1,200 would be shown as revenue, leading to an overstatement.
By making the necessary adjusting entry, with a debit to the unearned revenue account and a credit to the revenue account, the financial statements will reflect the accurate amount of revenue earned during the period, and the unearned portion will be properly deferred to future periods.