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5 September, 00:20

Woods Company made an ordinary repair to a delivery truck at a cost of $500. Woods' accountant debited the asset account, Equipment. Was this treatment an error, and if so, what will be the effect on the financial statements of Woods

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  1. 5 September, 00:24
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    Yes this statement was an error and its effect on financial statements of Woods will be that asset (equipment in this case) would be overstated and obviously the net income of the company would also increase.

    Explanation:

    Here Woods accountant has made the error of debiting the cost of $500 on the asset account (equipment), which shouldn't have happened as the asset accounts have natural debit balance which means that when an amount is debited to the asset account it will increase the value of the asset.

    So therefore here we can say that the asset here is overstated and if the assets are shown overstated it is natural that the income reflected would also be overstated.
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