COMM 293 Lecture Notes - Lecture 4: Financial Statement, Debits And Credits, Matching Principle
Document Summary
#1) revenue could be understated: because the company hasn"t recorded the revenue which has been earned yet. Often work is completed or sales are made in the last few days of the year. #2) revenue could also be understated: because management has not recognized revenue which is presently recorded in the unearned or deferred. A company may have received payments in advance of supplying a service or selling a product. When the funds were received they were recorded in the unearned revenue account (liability account) During the year, the service was provided or goods sold but the amount was never transferred to the revenue account. * at year end, it is important to adjust the unearned revenue account and properly record the revenue. Revenue could be overstated: when a company receives and records a payment from a customer as revenue prior to sale actually being finalized or the service being provided.
