At the end of the fiscal year, the following adjusting entries were omitted:

a. No adjusting entry was made to transfer the $1,750 of prepaid insurance from the asset account to the expense account.

b. No adjusting entry was made to record accrued fees of $525 for services provided to customers.

Assuming that financial statements are prepared before the errors are discovered, indicate the effect of each error, considered individually, by inserting the dollar amount in the appropriate spaces.

Question

Walker

Business

3 December, 16:22

At the end of the fiscal year, the following adjusting entries were omitted:

a. No adjusting entry was made to transfer the $1,750 of prepaid insurance from the asset account to the expense account.

b. No adjusting entry was made to record accrued fees of $525 for services provided to customers.

Assuming that financial statements are prepared before the errors are discovered, indicate the effect of each error, considered individually, by inserting the dollar amount in the appropriate spaces.

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Answers (1)

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Xavier Jenkins · Answer 1

The answers of the both parts are well explained below:

Explanation:

Part A.

The double entry to record the prepaid insurance would be:

Dr Insurance Expense $1750

Cr Prepaid Insurance $1750

Both prepaid insurance is a current asset which means that not decreasing the current asset at December 31 would overstate it by $1,750 and increase the profit by the same amount because the expenses are understated by $1750. It will also affect the tax calculated for the year.

Part B.

The double entry to record the expense that have been accrued, will be:

Dr Fees Accrued $525

Cr Fees Payable $525

Both the current liabilities and the expenses would be understated and would result in increase in the Profit which will increase the tax calculated.