Accrued salaries payable of $100000 were not recorded on December 31, 2017. Office supplies on hand of $57000 on December 31, 2018, were erroneously treated as an expense instead of supplies inventory. Neither of these errors was discovered nor corrected. The effect of these two errors would cause

Question

Paola Blackburn

Business

22 June, 16:31

Accrued salaries payable of $100000 were not recorded on December 31, 2017. Office supplies on hand of $57000 on December 31, 2018, were erroneously treated as an expense instead of supplies inventory. Neither of these errors was discovered nor corrected. The effect of these two errors would cause

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Dax Zimmerman · Answer 1

In 2017

Net Income and Retained Earning are overstated by $100,000

Expenses and Payables are understated by $100,000.

In 2018

Inventory, Net Income and Retained Earning are understated by $57,000

Expenses are overstates by $57,000

Explanation:

Accrued Salaries is Recorded as follow

Dr. Salaries Expense

Cr. Salaries Payament

Non recording of this entry will result in understatement of Expenses and Payables by $100,000 over statement of Net income and retained earning by the same amount.

Treatment of Office supplies of $57,000 as expense will overstate the expenses and understate the the inventory, Net income and Retained Earning.