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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following statements is correct regarding correcting accounting errors related to accrued revenues?

If accrued revenues are not recorded, equity will be overstated.

If accrued revenues are not recorded, liabilities will be overstated.

If accrued revenues are not recorded, both assets and revenues will be understated.

If accrued revenues are not recorded, expenses will be understated.

Previous problemNext problem

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 accounting books because the cash has not been received. These are typically recorded as assets (accounts receivable) and revenues in the financial statements.

Analyze the impact of not recording accrued revenues: If accrued revenues are not recorded, the earned revenue will not appear in the income statement, leading to an understatement of total revenues. Additionally, the related asset (accounts receivable) will not be recorded in the balance sheet, causing an understatement of total assets.

Evaluate the effect on equity: Since revenues contribute to net income, which is a component of equity, an understatement of revenues will also result in an understatement of equity. However, equity will not be overstated in this scenario.

Assess the impact on liabilities and expenses: Accrued revenues are unrelated to liabilities or expenses. Therefore, not recording accrued revenues does not affect liabilities or expenses, and they will not be overstated or understated.

Conclude the correct statement: Based on the analysis, the correct statement is: 'If accrued revenues are not recorded, both assets and revenues will be understated.' This aligns with the fundamental accounting principles.