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A company records the fees for legal services paid in advance by its clients in an account called Unearned Leg?

A company records the fees for legal services paid in advance by its clients in an account called Unearned Legal Fees. If the company fails to make the end-of-period adjusting entry to record the portion of these fees that has been earned, one effect will be: An overstatement of assets. An understatement of equity. An overstatement of equity. An understatement of assets. An understatement of liabilities.

Public Comments

1. Get out your old T-accounts. (Do they even teach that method any more?) The Unearned Legal Fees is a liability account to offset the cash when there is no corresponding sale. If you fail to make the end of period entry, you will have overstated liabilities which, since all things must balance in the end, would lead to and understatement of equity, as well as earnings.