ework Assignment Problem 4.3A Recording correcting entries. LO 4-4 The following

Question

ework Assignment Problem 4.3A Recording correcting entries. LO 4-4 The following journal entries were prepared by an employee of International Marketing Company who does not have an adequate knowledge of accounting Description Ref. Debit 2019 April 1 Accounts Payable 15,800 Fees Incone 15,800 Performed services on credit 2 Cash 600 Telephone Expense 600 Paid for March telephone service, Check 1917 3 office Equipment Office Supplies 8,200 900 Cash 9,500 Purchased file cabinet and office supplies, Check 1918 Assume that Office Equipment and Office Supplies were recorded at the correct values.) Required: Examine the above journal entries carefully and prepare the correcting journal entries Analyze: After the correct journal entries have been posted, what effect do the corrections have on the company's reported assets?

Explanation / Answer

In the given question we are required to correct the journal entries made by an emloyee of International marketing Company.

Following are the correct journal entries and their analysis:-

The company has performed services on credit for its clients for which it will recivave payment in future.

Here, the employee has made a mistake in debiting Accounts payable instead of Accounts receivable, because accounts payable is not an asset account , it is a liability. All liabilities have credit balalnces and all assets have debit balances. Hence it is account receivable that is to be debited because it is an asset account.

When services are performed on credit, it results into creation of an asset account called Accounts receivable, i.e. increase in accounts receivable.

Here, the company has made a payment for March telephone expenses, but the employee made a mstake by debiting cash account and crediting telephone expenses account. The correct entry shoulb the reverse of it as all expenses are debited.

Cash is an asset for the company. As a result of payment made , there will be a reduction in the cash account (Asset) of the company.

Here, in the entry, the employee has made a mistake of adding the ammounts of expenses which are to be credited to the cash account. Instead of 9500, the amount should be 9100.

This correction would increase the cash (asset) of the company by an amount of 400.

Date Description Debit Credit April 1 2019 Accounts Recivable 15800 Fees Income 15800 Being services performed on credit

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