Section 4 - Correcting Current Period Accrual Errors

Question 1

If expenses were incorrectly accrued for $140 instead of $160, what is the effect on the following:

Assets

Liabilities

Revenue

Expenses

Answer 1

Assets - No effect

Liabilities - Understated

Revenue - No effect

Expenses - Understated

Question 2

If expenses were incorrectly accrued for $1,200 instead of $1,000, what is the effect on the following:

Assets

Liabilities

Revenue

Expenses

Answer 2

Assets - No effect

Liabilities - Overstated

Revenue - No effect

Expenses - Overstated

Question 3

If a company forgets to accrue an expense in the amount of $500, what is the effect on the following:

Assets

Liabilities

Revenue

Expenses

Answer 3

Assets - No effect

Liabilities - Understated

Revenue - No effect

Expenses - Understated

Question 4

What is the general entry to record the accrual of an expense?

Answer 4

[Various Title] Expense (DR)

[Various Title] Payable (CR)

Question 5

If expenses were incorrectly accrued for $245 instead of $300, what is the effect on the following:

Assets

Liabilities

Revenue

Expenses

Answer 5

Assets - No effect

Liabilities - Understated

Revenue - No effect

Expenses - Understated

Question 6

What is the general entry to record the accrual of revenue?

Answer 6

[Various Title] Receivable (DR)

[Various Title] Revenue (CR)

Question 7

If expenses were incorrectly accrued for $1,000 instead of $1100, what is the effect on the following:

Assets

Liabilities

Revenue

Expenses

Answer 7

Assets - No effect

Liabilities - Understated

Revenue - No effect

Expenses - Understated

Question 8

If a company forgets to accrue an expense for $325, what is the effect on the following:

Assets

Liabilities

Revenue

Expenses

Answer 8

Assets - No effect

Liabilities - Understated

Revenue - No effect

Expenses - Understated

Question 9

If expenses were incorrectly accrued for $125 instead of $100, what is the effect on the following:

Assets

Liabilities

Revenue

Expenses

Answer 9

Assets - No effect

Liabilities - Overstated

Revenue - No effect

Expenses - Overstated

Question 10

If a company forgot to accrue an expense for $60, what is the effect on the following:

Assets
Liabilities
Revenue
Expenses

Answer 10

Assets - No effect

Liabilities - Understated

Revenue - No effect

Expenses - Understated

Question 11

If expenses are accrued for $600 instead of $500, what is the effect on the following:

Assets
Liabilities
Revenue
Expenses

Answer 11

Assets - No effect
Liabilities - Overstated
Revenue - No effect
Expenses - Overstated

Question 12

What does it mean to accrue an expense?

Answer 12

Accruing an expense is recording an expense that has been incurred but not yet paid.

Question 13

What does it mean to accrue revenue?

Answer 13

Accruing revenue is recording revenue that has been earned but payment has not yet been received.

Question 14

What is an accrual error?

Answer 14

An accrual error takes place when: 1. A journal entry to accrue expenses or revenue has been omitted. 2. Too little expense or revenue was accrued. 3. Too much expense or revenue was accrued.

Question 15

An error of accrued expenses takes place when

Answer 15

1. A journal entry to accrue expenses has been omitted. 2. Too little expense was accrued. 3. Too much expense was accrued.

Question 16

What is a Prior Period Adjustment?

Answer 16

If an error is discovered after the books have been closed, the company is required to make a Prior Period Adjustment to Retained Earnings or Capital.

Question 17

An error of accrued revenue takes place when

Answer 17

1. A journal entry to accrue revenue has been omitted. 2. Too little revenue was accrued. 3. Too much revenue was accrued.

Question 18

How is an accrual error corrected if it was discovered after the books have been closed?

Answer 18

If an accrual error has been discovered after the books were closed, because Revenue and Expense accounts from the prior year have been closed, a Prior Period Adjustment to Retained Earnings or the Capital account is required to correct the error.

Question 19

If a company discovered revenue has not been accrued before the books have been closed, how is the error corrected?

Answer 19

A current period accrual error is corrected by adjusting the inaccurate account balances with a journal entry. Because the books have not yet been closed, current period errors are easily corrected. The journal entry would be [Various Titles] Receivable (DR) [Various Titles] Revenue (CR)

Question 20

If a company discovered expenses were not accrued before the books have been closed, how is the error corrected?

Answer 20

A current period accrual error is corrected by adjusting the inaccurate account balances with a journal entry. Because the books have not yet been closed, current period errors are easily corrected. The journal entry would be [Various Titles] Expense (DR) [Various Titles] Payable (CR)

Question 21

How is a current period accrual error corrected?

Answer 21

A current period error is corrected by adjusting the inaccurate account balances with a journal entry. Because the books have not yet been closed, current period errors are easily corrected.

Question 22

What is a current period error?

Answer 22

An error that has been discovered before the books have been closed.

Question 23

If an accrual error is discovered before the books are closed, how does the company correct the error?

Answer 23

Because the books have not yet been closed, current period errors are easily corrected by adjusting the inaccurate account balances with a journal entry.

Question 24

Your employer has a Mon-Fri workweek and has a payroll of $25,000 each Friday. In 20x2, December 31st falls on a Wednesday. If the salaries expense was accrued for $20,000, how would the error be corrected if discovered before the books have been closed?

Answer 24

Because the books have not yet been closed, the error is easily corrected by adjusting the inaccurate account balances with a journal entry. The company has a gross payroll of $25,000 with a 5-day work-week. The company pays $5,000 daily, therefore since 3 days have been accrued, the correct journal entry should have been for $15,000 as opposed to $20,000. Because the company accrued too much expense, the adjusting entry will have to reduce the balances in the Expense account, as well as the balance in the payable account by $5,000 to reflect a balance of $15,000. ($5,000 per day x 3) The original entry was: Salaries Expense $20,000 Salaries Payable $20,000 The adjusting entry to correct the error would be: Salaries Payable $5,000 Salaries Expense $5,000

Question 25

Your employer has a Mon-Fri workweek and has a payroll of $25,000 each Friday. In 20x2, December 31st falls on a Wednesday. If the salaries expense was accrued for $10,000, how would the error be corrected if discovered before the books have been closed?

Answer 25

Because the books have not yet been closed, the error is easily corrected by adjusting the inaccurate account balances with a journal entry. The company has a gross payroll of $25,000 with a 5-day work-week. The company pays $5,000 daily, therefore since 3 days have been accrued, the correct journal entry should have been for $15,000 as opposed to $10,000. Because the company accrued too little expense, the adjusting entry will have to increase the balances in the Expense account, as well as the balance in the payable account by $5,000 to reflect a balance of $15,000. ($5,000 per day x 3) The original entry was: Salaries Expense $10,000 Salaries Payable $10,000 The adjusting entry to correct the error would be: Salaries Expense $5,000 Salaries Payable $5,000

Question 26

Your employer has a Mon-Fri workweek and has a payroll of $25,000 each Friday. In 20x2, December 31st falls on a Thursday. If no salaries expense was accrued, how would the error be corrected if discovered before the books have been closed?

Answer 26

Because the books have not yet been closed, the error is easily corrected by adjusting the inaccurate account balances with a journal entry. The company has a gross payroll of $25,000 with a 5-day work-week. The company pays $5,000 daily, therefore since 4 days have been accrued, a journal entry should have recorded for $20,000. Because the company didn’t accrue the expenses, an adjusting entry will have to be made to record the omitted entry. If the entry is not made, the balances in the Expense account, as well as the payable account would be understated by $20,000. ($5,000 per day x 2) The adjusting entry to correct the books would be: Salaries Expense $20,000 Salaries Payable $20,000

Question 27

Your employer has a Mon-Fri workweek and has a payroll of $45,000 each Friday. In 20x2, December 31st falls on a Tuesday. If the salaries expense was accrued for $27,000, how would the error be corrected if discovered before the books have been closed?

Answer 27

Because the books have not yet been closed, the error is easily corrected by adjusting the inaccurate account balances with a journal entry. The company has a gross payroll of $45,000 with a 5-day work-week. The company pays $9,000 daily, therefore since 2 days have been accrued, the correct journal entry should have been for $18,000 as opposed to $27,000. Because the company accrued too much expense, the adjusting entry will have to reduce the balances in the Expense account, as well as the balance in the payable account by $9,000 to reflect a balance of $18,000. ($9,000 per day x 2) The original entry was: Salaries Expense $27,000 Salaries Payable $27,000 The adjusting entry to correct the error would be: Salaries Payable $9,000 Salaries Expense $9,000

Question 28

In January 20x3, after the books for 20x2 have been closed, you notice that the December 20x3 utility bill of $375 was neither paid nor recorded 1. What is the correcting journal entry? 2. If no correcting journal entry is recorded, what is the effect on the 20x2 Income Statement and Balance Sheet affected?

Answer 28

Because the Prior year expense accounts have been closed, the company cannot make a correcting journal entry. Instead, a prior period adjustment is required which will adjusting the 20x2 Retained Earnings or Capital account. Since no correcting entry was made before the books have been closed, the Income statement net income was overstated by $375. The Balance Sheet Retained Earnings or Capital was overstated by $375 and the Utilities Payable liability account was understated by the same amount.

Question 29

In January 20x1, after the books have been closed for 20x0, you notice that Rent expense for December 20x0 was neither paid nor recorded 1. What is the correcting journal entry? 2. If no correcting journal entry is recorded, what is the effect on the 20x0 Income Statement and Balance Sheet affected?

Answer 29

Because the Prior year expense accounts have been closed, the company cannot make a correcting journal entry. Instead, a prior period adjustment is required which will adjusting the 20x0 Retained Earnings or Capital account. Since no correcting entry was made before the books have been closed, the Income statement net income was overstated. The Balance Sheet Retained Earnings or Capital was overstated and the Rent Payable liability account was understated.

Question 30

In January 20x1, before closing the books for 20x0, you notice that the December 20x0 utility bill of $750 was neither paid nor recorded 1. What is the correcting journal entry? 2. If no correcting journal entry is recorded, what is the effect on the 20x0 Income Statement and Balance Sheet affected?

Answer 30

Because the books have not yet been closed, the error is easily corrected by adjusting the inaccurate account balances with a journal entry. The correcting journal entry is: Utilities Expense $750 Utilities Payable $750 If no correcting entry is made, the income statement would overstate net income by $750 and the balance should would overstate Retained Earnings or Capital by $750 and understate the Utilities Payable liability account by the same amount.

Question 31

As of August 1 20x0, your company borrows $120,000 and signs a 3-year note with an annual interest rate of 11%. Principal and all accrured interest will be paid at maturity. In January 20x1, before the books have been closed, you discover no interest was accrued for 20x0.

Answer 31

No interest

Question 32

In 20x0, your company performs $35,000 worth of services for XYZ Co. At year end, before the books have been closed, you discover revenue was accrued for $29,000. 1. What is the correcting journal entry? 2. If no correcting journal entry is recorded, what is the effect on the 20x0 Income Statement and Balance Sheet affected?

Answer 32

Too little accrued

Question 33

In 20x0, your company performed $24,000 worth of services for XYZ Co. At year-end, before the books have been closed, you discover there was no entry to record the accrued revenue.

1. What type of error took place?
2. What is the correcting journal entry if the error was discovered before the books were closed?
3. If the error was discovered after the books were closed what is the effect on the 20x0 Income Statement and Balance Sheet?

Answer 33

1. Error of omission (Company forgot to record $24,000 earned)

2. Rent Receivable (DR) $24,000
 Rent Revenue (CR) $24,000

3. I/S = Revenue - Understated / Expenses - No effect / Net Income - Understated
   B/S = Assets - Understated / Liabilities - No effect / Retained Earnings - Understated

Question 34

On August 1, 20x1, your company sublets office space to Zion Co for $1,600 a month on a lease that runs from August 1 20x1 to July 31, 20x2. In January of 20x2, after the books have been close, you realize no revenue has been accrued. How would the company correct such an error?

Answer 34

Since the error was discovered in Jan 20x2, after the books were closed, in order to fix the error, a prior period adjustment is necessary.

Question 35

On August 1, 20x0, your company sublets office space to LORI Co for $800 a month on a lease that runs from August 1 20x0 to July 31, 20x2. At the end of 20x0, you discover rent has been accrued for $3,200.

1. What type of error took place?
2. What is the correcting journal entry if the error was discovered before the books were closed?
3. If the error was discovered after the books were closed what is the effect on the 20x0 Income Statement and Balance Sheet?

Answer 35

1. Too little Rent revenue accrued (Space was rented to LORI Co for 5 months, ( August 20x0 - Dec 20x0) therefore, the correct amount of revenue to accrue was $4,000. The company accrued revenue by $800 too little [$4,000-$3,200 = $800)
2. Rent Receivable (DR) $800
   Rent Revenue (CR) $800
3. I/S = Revenue - Understated / Expenses - No effect / Net Income - Understated
   B/S = Assets - Understated / Liabilities - No effect / Retained Earnings - Understated

Question 36

On April 1, 20x0, your company sublets office space to Perry Co for $500 a month on a lease that runs from April 1 20x0 to March 30, 20x2. At the end of 20x0, you discover no rent has been accrued.

1. What type of error took place?
2. What is the correcting journal entry if the error was discovered before the books were closed?
3. If the error was discovered after the books were closed what is the effect on the 20x0 Income Statement and Balance Sheet?

Answer 36

1. Error of omission (Company forgot to record $4,500 earned (Space has been rented to Perry Co for 9 months, [9 x $500 = $4,500]
2. Rent Receivable (DR) $900
   Rent Revenue (CR) $900
3. I_/S_ = Revenue - Understated / Expenses - No effect / Net Income - Understated
   B/S = Assets - Understated / Liabilities - No effect / Retained Earnings - Understated

Question 37

In 20x0, your company performed $35,000 worth of services for XYZ Co. At year-end, before the books have been closed, you discover revenue was accrued for $45,000.

1. What type of error took place?
2. What is the correcting journal entry if the error was discovered before the books were closed?
3. If the error was discovered after the books were closed what is the effect on the 20x0 Income Statement and Balance Sheet?

Answer 37

Too much revenue acrrued. (The company accrued revenue by $10,000 too much [$45,000-$35,000 = $10,000)

2. Revenue (DR) $10,000
   Accounts Receivable (CR) $10,000
3. I/S = Revenue - Overstated / Expenses - No effect / Net Income - Overstated
   B/S = Assets - Overstated / Liabilities - No effect / Retained Earnings - Overstated

Question 38

On April 1, 20x0, your company sublets office space to Perry Co for $1,100 a month on a lease that runs from April 1 20x0 to March 30, 20x2. At the end of 20x0, you discover rent has been accrued for $11,000.

1. What type of error took place?
2. What is the correcting journal entry if the error was discovered before the books were closed?
3. If the error was discovered after the books were closed, what is the effect on the 20x0 Income Statement and Balance Sheet?

Answer 38

1. Too much Rent revenue accrued (Space was rented to Perry Co for 9 months, ( April 20x0 - Dec 20x0) therefore, the correct amount of revenue to accrue was $9,900. The company accrued revenue by $1,100 too much [$11,000-$9,900 = $1,100)
2. Rent Revenue (DR) $1,100

Rent Receivable (CR)$1,100

3. I/S = Revenue - Overstated / Expenses - No effect / Net Income - Overstated

B/S = Assets - Overstated / Liabilities - No effect / Retained Earnings - Overstated