If the accountant for Sam Consulting Company failed to adjust the unearned revenue account for $3,000 of revenue that has now been earned, it means that the company's liabilities are overstated by $3,000.
Here's why:
- Unearned revenue represents money received in advance for services or goods that have not yet been delivered or performed. Therefore, it is recorded as a liability.
- When the revenue is earned, the company should adjust its accounts by decreasing the unearned revenue (liability) and increasing revenue (income).
Since the necessary adjustment was not made, the unearned revenue remains recorded at a higher amount than it should be, resulting in inflated liabilities on the company's balance sheet. Thus, liabilities are overstated for the period by $3,000.
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