Respuesta :
If the company fails to record a year-end adjusting entry for unearned revenues, then its financial statements should understate revenue and overstate liabilities.
Due to failure of record a year end adjusting entry for unearned revenue, the liabilities in the book is higher than its actual balance and revenue value is lower than its actually earned value.
Unearned revenue is defined as the revenue which is received in advance but goods and services is not delivered yet.
If the entry is not recorded , then revenue should be understated because it is not revenue but income received in advance, therefore it is liability for the company to deliver goods or services . After delivering of goods and services, the revenue the liability will de decreased and revenue will be recorded.
If the goods or service is not delivered within 12 months then it is recorded as the long term liabilities in the balance sheet .
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