On Dec 31, 2018, while auditing the accounting records for the last two years, an error...

Question

Question

On Dec 31, 2018, while auditing the accounting records for the last two years, an error...

On Dec 31, 2018, while auditing the accounting records for the last two years, an error is

found. At the end of 2017, the company failed to accrue sales salaries of $45,000. Instead,

when the employees were paid on Jan 15, 2018 they recorded the following journal

entry:

Wages/Salaries Expense (debit)

$45,000

Cash (credit)

$45,000

What is the correcting journal entry that shouldbe made on Dec 31, 2018, before the books are closed?

business accounting

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Answer 1

Answer #1

Answer

ISSUE:

$ 45000 sales salaries expense belong to accounting period 2017.

However, the same got omitted to be recorded and incorrectly there got recorded as 2018’s expense.

EFFECT of ERROR:
>2017’s expenses got understated, which would have overstated Net Income and Retained Earnings.
>2018’s expense got overstated.
SOLUTION:
>Decrease the overstated Retained earnings balance, and
>Decrease the overstated 2018’s expense.
Correcting entry:

Accounts title	Debit	Credit
Retained earnings [to decrease retained earnings]	$45,000
Wages/Salaries Expense [earlier they got incorrectly debited]		$45,000

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Answer 2

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