Swaggy Steve's Clothing Company just completed their fiscal year ending August 31, 2019. The company's controller, when reviewing the trial balance, has discovered that the following four errors were made: 1. Swaggy recorded a $400 purchase of supplies on account by debiting Accounts Payable and crediting Supplies. 2. A cash receipt of $1,800 received from a customer as payment on their account was debited to cash and credited to sales revenue. 3. Swaggy recorded the payment of $750 in salaries expense as $570 (the correct accounts were debited and credited). 4. A payment of $1,200 for October's rent was debited to rent expense. Required: A. Using the space provided below, indicate how each element of the basic accounting equation is affected by the error by writing the amount and whether it is overstated (higher than what it is supposed to be) or understated (lower than what it is supposed to be), e.g., if the error caused assets to be overstated by $100 write "$100 Overstated" under Assets. Enter "NE" if there is no effect on the element.
Swaggy Steve's Clothing Company just completed their fiscal year ending August 31, 2019. The company's controller, when reviewing the trial balance, has discovered that the following four errors were made: 1. Swaggy recorded a $400 purchase of supplies on account by debiting Accounts Payable and crediting Supplies. 2. A cash receipt of $1,800 received from a customer as payment on their account was debited to cash and credited to sales revenue. 3. Swaggy recorded the payment of $750 in salaries expense as $570 (the correct accounts were debited and credited). 4. A payment of $1,200 for October's rent was debited to rent expense. Required: A. Using the space provided below, indicate how each element of the basic accounting equation is affected by the error by writing the amount and whether it is overstated (higher than what it is supposed to be) or understated (lower than what it is supposed to be), e.g., if the error caused assets to be overstated by $100 write "$100 Overstated" under Assets. Enter "NE" if there is no effect on the element.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Swaggy Steve's Clothing Company just completed their fiscal year ending August 31, 2019. The company's controller, when
reviewing the trial balance, has discovered that the following four errors were made:
1. Swaggy recorded a $400 purchase of supplies on account by debiting Accounts Payable and crediting Supplies.
2. A cash receipt of $1,800 received from a customer as payment on their account was debited to cash and credited to sales revenue.
3. Swaggy recorded the payment of $750 in salaries expense as $570 (the correct accounts were debited and credited).
4. A payment of $1,200 for October's rent was debited to rent expense.
Required:
A. Using the space provided below, indicate how each element of the basic accounting equation is affected by the error by writing the
amount and whether it is overstated (higher than what it is supposed to be) or understated (lower than what it is supposed to be), e.g.,
if the error caused assets to be overstated by $100 write "$100 Overstated" under Assets. Enter "NE" if there is no effect on the
element.
ASSETS =
LIABILITIES +
SHAREHOLDERS' EQUITY
Error 1
Error 2
Error 3
Error 4
B. Prepare the correct journal entries that should have been recorded by the company for each of the four transactions listed in the
question. Omit the explanations. Record your answers in the space provided below:
Reference
Account
Debit
Credit
Error 1
Error 2
Error 3
Error 4
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Step 1 Introduction
The errors in posting or recording the transactions, may lead to errors in the trial balance.
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