Question

company purchased merchandise on credit at December 31, 2020, for $16,800. That merchandise was in its warehouse that same day. This purchase was not recorded in 2020 because the accounting department did not receive the invoice from the vendor. In 2021, the invoice was received, reported, and paid.

a. Assuming that financial statements are not yet issued for 2020 when this error is discovered, what journal entry, if any, is recorded? The company applies a periodic inventory system.

b. Assuming that financial statements are already issued for 2020 when this error is discovered, what journal entry, if any, is recorded? Ignore income taxes.

Date		Account Name	Dr.	Cr.
a.	Dec. 31, 2020		Answer	Answer
			Answer	Answer

Date		Account Name	Dr.	Cr.
b.	Jan. 1, 2021		Answer	Answer
			Answer	Answer

Answer 1

A)As the financials are not yet prepared and goods are lying in the warehouse, we can record purchase as on Dec 31, 2020. Date Particulars Debit(s) Credit($) Dec 31,2020 Purchases 16800 Accounts payable 16800 B) Financials are b prepared for 2020, we have not recorded a purchase of $16,800, understatement of purchase will result in overstatement of net income * in 2020 we have to reduce the net income to the extent of $15,600 and also create an accounts for $15600. Particulars Credit($) Date 1-Jan-21 Debit($) 16800 Income Summary adjustment Accounts payable 168001 *Income Summary adjustment A/c will be closed by transferring to income Summary . By this net income will decrease.