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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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  1. 22 June, 16:43
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    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.
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