EX 3-9 Effect of omitting adjusting entry

At the end of October, the first month of the business year, the usual adjusting entry
transferring rent earned to a revenue account from the unearned rent account was omitted.
Indicate which items will be incorrectly stated, because of the error, on (a) the income
statement for October and (b) the balance sheet as of October 31. Also indicate whether
the items in error will be overstated or understated.

Answer:
a. Rent revenue (or revenues) will be understated. Net income will be understated.
b. Unearned rent (liabilities) will be overstated. Owner’s equity at the end of the
period will be understated.