After preparing its financial statements for June, Pinnacle Corporation realizes that its income statement shows total revenues that are $500 too high and total expenses that are $500 too low. What effect will these errors have on Pinnacle's balance sheet for the month, assuming all other account balances listed on that sheet are correct?

Question

Coleman Brock

Business

3 November, 12:58

After preparing its financial statements for June, Pinnacle Corporation realizes that its income statement shows total revenues that are $500 too high and total expenses that are $500 too low. What effect will these errors have on Pinnacle's balance sheet for the month, assuming all other account balances listed on that sheet are correct?

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Answers (1)

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Dean Brock · Answer 1

The answer is: The total liabilities and equity will be $1,000 higher than the total assets amount, so the balance sheet will not be balanced.

Explanation:

If the income statement overstated revenue by $500 and understated expenses by $500, that will result in $1,000 in "fake" profit. If profit is overstated by $1,000 then the balance sheet will also be altered. The total liabilities and equity will be $1,000 higher than the total assets amount. The balance sheet will not be balanced.