Analyzing the Effects of Errors on Financial Statement Items E4-14 LO2 Cohen & Boyd, Inc., publishers of movie and song trivia books, made the following errors in adjusting the accounts at year-end (December 31): a. Did not accrue $1,400 owed to the company by another company renting part of the building as a stor- age facility. b. Did not record $15,000 depreciation on the equipment costing $115,000. c. Failed to adjust the Unearned Fee Revenue account to reflect that $1,500 was earned by the end of the year. d. Recorded a full year of accrued interest expense on a $17,000, 9 percent note payable that has been outstanding only since November 1. e. Failed to adjust Prepaid Insurance to reflect that $650 of insurance coverage has been used. CHAPTER 4 Adjustments, Financial Statements, and the Quality of Earnings Required: 1. For each error, prepare the adjusting journal entry (a) that was made, if any, and (b) that should have been made at year-end. 2. Using the following headings, indicate the effect of each error and the amount of the effect (that is, the difference between the entry that was or was not made and the entry that should have been made). Use O if the effect overstates the item, U if the effect understates the item, and NE if there is no effect. (Reminder: Assets Liabilities + Stockholders' Equity3; Revenues - Expenses Net Income; and Net Income accounts are closed to Retained Earnings, a part of Stockholders' Equity.) BALANCE SHEET INCOME STATEMENT Stockholders' Net Transaction Assets Liabilities Equity Revenues Expenses Income а. b. C. (etc.)
The Effect Of Prepaid Taxes On Assets And Liabilities
Many businesses estimate tax liability and make payments throughout the year (often quarterly). When a company overestimates its tax liability, this results in the business paying a prepaid tax. Prepaid taxes will be reversed within one year but can result in prepaid assets and liabilities.
Final Accounts
Financial accounting is one of the branches of accounting in which the transactions arising in the business over a particular period are recorded.
Ledger Posting
A ledger is an account that provides information on all the transactions that have taken place during a particular period. It is also known as General Ledger. For example, your bank account statement is a general ledger that gives information about the amount paid/debited or received/ credited from your bank account over some time.
Trial Balance and Final Accounts
In accounting we start with recording transaction with journal entries then we make separate ledger account for each type of transaction. It is very necessary to check and verify that the transaction transferred to ledgers from the journal are accurately recorded or not. Trial balance helps in this. Trial balance helps to check the accuracy of posting the ledger accounts. It helps the accountant to assist in preparing final accounts. It also helps the accountant to check whether all the debits and credits of items are recorded and posted accurately. Like in a balance sheet debit and credit side should be equal, similarly in trial balance debit balance and credit balance should tally.
Adjustment Entries
At the end of every accounting period Adjustment Entries are made in order to adjust the accounts precisely replicate the expenses and revenue of the current period. It is also known as end of period adjustment. It can also be referred as financial reporting that corrects the errors made previously in the accounting period. The basic characteristics of every adjustment entry is that it affects at least one real account and one nominal account.
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