Cook Enterprises purchased goods from a supplier on credit for $2,000 on December 31, 2020. No journal entry was recorded for this transaction. As a result of this error, what is the effect on the company’s financial statements for the year ended December 31, 2020? Liabilities are understated; assets are understated. Assets are overstated; liabilities are overstated. Assets are understated; expenses are understated. Liabilities are understated; expenses are understated. None of the answers are correct. I believe it is the bolded option, as we now have credit we owe, as well as an asset. Leading to both being understated
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
T. Cook Enterprises purchased goods from a supplier on credit for $2,000 on December 31, 2020. No
The question is based on the concept of Financial Accounting.
When any asset is purchased on credit it will increase both the assets and the liabilities in the Balance Sheet.
Step by step
Solved in 2 steps
