Question

under which cases the prepaid account and unearned revenue account can be over or understated?

Answer 1

If expense account is understated, then it is likely that the prepaid expenditure account is overstated. Similarly if the expense account is overstated, it is likely that the corresponding prepaid expenditure account is understated.

If the revenues for the year are overstated, it is likely that it includes rvenues pertaining to the next year ie unearned revenues. As a result of this, unearned revenues are understated. Similarly, if revenues may not include some its revenues received and recorded as unearned. Thus resulting in understated revenues and overstated unearned revenues.

The above scenarios may happen due to an accounting error or deliberate error ie fraud.