On August 4, 2010, a company incorrectly debits Rent Expense instead of Salaries

Question

On August 4, 2010, a company incorrectly debits Rent Expense instead of Salaries Expense when recording payroll for the month. On August 30, the error is discovered while preparing the trial balance. Propose a correcting journal entry to correct the books. If the error had not been discovered, how would the company's income statement have been affected? Prepare journal entries for the following selected transactions and post them to the appropriate general ledger accounts. In posting the entries, use account numbers from the chart of accounts at the hack of the book, and assume the journal entries are made on page 4 of the general journal. Harley Vance invests S60.000 of cash along with fitness equipment valued at $25,000 m her startup business named HV Fitness. Vance withdraws $2,800 cash for personal use.

Explanation / Answer

1. The correcting entry would be

Rent expenses Debit

Salary expense Credit.

If the error would not have been discovered then the company's income statement would be showing wrong salary expenses and rent expenses.

2. a. Cash Debit $60000

Fitness equipment Debit $25000

Capital Credit $85000

b. Drawings Debit $2800

Capital Credit $2800

Capital Account

  

Particulars $Amount Particulars $Amount To drawings 2800 By Cash 60000 To Balance carried forward 82200 By Fitness equipments 25000 Total 85000 Total 85000

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