The adjusting entry for accrued fees was omitted at the end of the current year. Indicate which items will be in error, because of the omission, on (a) the income statement for the current year and (b) the balance sheet at the end of the year. Also indicate whether the items in error will be overstated or understated.
Answers:
a. Fees earned (or revenues) will be understated. Net income will be understated.
b. Accounts receivable (or assets) will be understated. Owner’s equity (owner’s capital account) will be understated.