Question
How would the following errors affect the account balances and the basic accounting equation, Assets = Liabilities + Owners' Equity?
How do the misstatements affect income?
Assets Liabilities Owners' Equity Income a. The purchase of a truck is recorded as an expense instead of an asset.
- Select your answer - CorrectOverstatedUnderstatedItem 1 - Select your answer - CorrectOverstatedUnderstatedItem 2 - Select your answer - CorrectOverstatedUnderstatedItem 3 - Select your answer - CorrectOverstatedUnderstatedItem 4 b. A cash payment on accounts receivable is received but not recorded.
- Select your answer - CorrectOverstatedUnderstatedItem 5 - Select your answer - CorrectOverstatedUnderstatedItem 6 - Select your answer - CorrectOverstatedUnderstatedItem 7 - Select your answer - CorrectOverstatedUnderstatedItem 8 c. Fictitious sales on account are recorded.
- Select your answer - CorrectOverstatedUnderstatedItem 9 - Select your answer - CorrectOverstatedUnderstatedItem 10 - Select your answer - CorrectOverstatedUnderstatedItem 11 - Select your answer - CorrectOverstatedUnderstatedItem 12 d. A clerk misreads a handwritten invoice for repairs and records it as $1,500 instead of $1,800.
- Select your answer - CorrectOverstatedUnderstatedItem 13 - Select your answer - CorrectOverstatedUnderstatedItem 14 - Select your answer - CorrectOverstatedUnderstatedItem 15 - Select your answer - CorrectOverstatedUnderstatedItem 16 e. Payment is received on December 31 for the next three months' rent and is recorded as revenue.
Explanation / Answer
a) asset is understated
liabilities is unaffected
owners equity is understated as expenses increased and thereby reducing profit
income is understated
b)Asset unaffected as both are assets
liabilities owner's equity and income is unaffected
c)Assets overstated
liabilities unaffected
owner's eequity and income overstated
d)Assets unaffected
liabilities unaffected
Owner's equity and income understated
it is single error entry
e)Assets unaffected as cash is received
liabilities understated as unrealised rent is recorded as revenue
Owner' equity and income is overstated as it is recorded as revenue
