Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Adjusting Entries: Accrued Revenues

Financial Accounting

3. Accrual Accounting Concepts

Adjusting Entries: Accrued Revenues

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Multiple Choice

At the end of the accounting period, before the adjusting entries for accrued revenues are recorded, which of the following statements is true?

Revenues are overstated and assets are understated.

Revenues are understated and assets are understated.

Revenues are overstated and assets are overstated.

Revenues are understated and liabilities are overstated.

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Verified step by step guidance

Understand the concept of accrued revenues: Accrued revenues are revenues that have been earned but not yet recorded in the books of accounts because the cash has not yet been received. These are typically recorded as an adjusting entry at the end of the accounting period.

Recognize the impact of not recording accrued revenues: If accrued revenues are not recorded, it means that the revenue earned during the period is not reflected in the income statement, and the corresponding asset (such as accounts receivable) is not reflected in the balance sheet.

Analyze the relationship between revenues and assets: When accrued revenues are not recorded, both revenues and assets are understated because the earned revenue is missing from the income statement, and the receivable (an asset) is missing from the balance sheet.

Eliminate incorrect options: Review the provided options and eliminate those that do not align with the understanding that both revenues and assets are understated when accrued revenues are not recorded.

Select the correct answer: The correct statement is 'Revenues are understated and assets are understated,' as this accurately reflects the impact of not recording accrued revenues at the end of the accounting period.