Question

The Pieper Corp. recorded the accrual of a revenue by debiting Accounts Receivable and crediting Unearned Revenue. What is the effect of the error on the following?

a. Liabilities Net Income
No error No error
b. Liabilities Net Income
No error Overstated
c. Liabilities Net Income
Understated Overstated
d. Liabilities Net Income
Overstated Understated
e. Liabilities Net Income
Overstated No Error

Answer 1

e. Liabilities Net Income

Overstated No Error

Step-by-step explanation:

Unearned Revenue is a liability account that is used to record revenue that the business has received but not yet earned because the goods and services have not yet been provided. By crediting Accrued revenue to this account, it increases it when it is not supposed to so Liabilities are overstated.

Accrued Revenue go to the Accounts Receivable section of the balance sheet to indicate that the business is owed for goods or services provided and so have nothing to do with Net Income so there is no error there.