Question

If an adjustment is needed for unearned revenues, A. the liability and related revenue are overstated before adjustment. B. liability and related revenue are understated before adjustment. C. liability is overstated and the related revenue is understated before adjustment. D. liability is understated and the related revenue is overstated before adjustment.

Answer 1

A. the liability and related revenue are overstated before adjustment

Step-by-step explanation:

An unearned revenue is any amount that a firm gets in advance for services to be provided in future or goods to be delivered in future. So it forms a current liability on the balance sheet .Balance sheet is adjusted when service is provided or goods are supplied in future . The balance of existing liability of unearned revenue is progressively reduced as and when goods are delivered. In this case unearned revenue account is debited and revenue account is credited.