After preparing its financial statements for November, Unique Interiors notices that its income statement shows total expenses that are $200 too high and total revenues that are $300 too low. What effect will these errors have on Unique's balance sheet for the month, assuming all other account balances listed on that sheet are correct?

Question

Casey Lee

Business

20 February, 10:06

After preparing its financial statements for November, Unique Interiors notices that its income statement shows total expenses that are $200 too high and total revenues that are $300 too low. What effect will these errors have on Unique's balance sheet for the month, assuming all other account balances listed on that sheet are correct?

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Answers (2)

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Trey Walker · Answer 1

The month-end retained earnings amount shown on Franklin's retained earnings statement will be $100 lower than the firm's actual month-end retained earnings.

Yasmine Moses · Answer 2

Answer: The retained earnings on the balance sheet will be understated.

Explanation:

Retained earnings is the reserve profit of an organisation. It forms part of the owners equity on the balance sheet.

An understatement of revenue and overstatement of expenses will lead to a reduced profit.

For instance, if revenue is $1500 and expenses is $500 profit will be $1000. However, if revenue is stated as $1200 while expenses is stated as $700. The profit reported will be $500.