A company received advanced payment of £10000 for rent on Dec1X1 for December X1 and January X2. On receipt they recorded it as cash and unearned revenue. If at december 31, they don’t make any adjusting entries, what would be the impact on fin statements: Asset and liabilit -both overstated by 5000 Liability overstated by 5k net income by 5k asset overstated by 5k and owner’s equity is overstated by 5k liability overstated by 5k and owner’s equity is understated by 5k
Liability overstated and equity understated.
thunderanalyst, can you explain the logic of equity underestated by 5k- won’t it depend on tax, retention etc. What happens to the assets? S
I think we had a long discussion on this one, but nothing really came out. Just solve the case while maintaining the sanctity of A=L+E equation, thats the best logic !