Question

An architecture firm earned earned $2040 for architecture services provided with the fee to be paid in the future. No entry was made at the time the service was provided. If the fee has not been paid by the end of the accounting period and no adjusting entry is made, this would cause:

Answer 1

Answer: Revenues will be understated

Explanation:

Adjusting entries are journal entries which are made by businesses at the end of a particular accounting period in order to show the income and expenditure at the particular period they took place.

Since the architecture firm earned earned $2040 for architecture services and the fee was agreed to be paid in the future. Since the fee has not been paid by the end of the accounting period and no adjusting entry is made, the revenue will be understated because the $2040 earned won't reflect in the revenue.