Question

Identify the impact on the income statement and balance sheet if adjusting entries for the following situations were not recorded. a. Office Supplies used, \(800. b. Accrued service revenue, \)4,000. c. Depreciation on building, \(3,500. d. Prepaid Insurance expired, \)650. e. Accrued salaries expense, \(2,750. f. Service revenue that was collected in advance has now been earned, \)130

Short answer

In the balance sheet, accounts receivable and equity will be understated, and in the income statement, service revenue and net income will be understated.

Step-by-step solution

Impact on Income Statement

Accrued service revenue are the earned revenues of the business, not recording the adjusting entries will reduce the service revenues, and also will lead to reduction in the net income

Impact on Balance Sheet

Accrued service revenue increase the accounts receivable balance as cash is not received for the revenue earned, not recording the adjusting entry will decrease accounts receivable in asset section. Also as net income is decreased, it will decrease equity (Retained earnings) also.