Question

Uator:&inprogress=false Effect of Omitting Adjusting Entry Accrued salaries owed to employees for October 30 and 31 are not considered in preparing the financial statements for the year ended Oc Indicate which items will be erroneously stated, because of the error, on (A) the income statement for the year and (b) the balance sheet Also indicate whether the items in error will be overstated or understated. a. Income Statement Salaries Expense Net Income b. Balance Sheet Salaries Payable Stockholders' Equity

Answer 1

Ans:

(1) Due to the omission of recording the accrued salary for Oct 30 and 31, Salaries Expense and Net profit on the Income statement for the year will be erroneously stated and on the Balance sheet, Salaries payable and stockholders equity will be erroneously stated,

Errors for the year ended October 31

(a) Income Statement
Salaries Expense	Understated	Salary expense is not booked
Net Profit	Overstated	Expense less booked therefore profit is overstated
(b) Balance Sheet
Salaries Payable	Overstated	Omission to record the salary expense will increase the liability at the balance sheet date
Stockholders equity	Overstated	As net profit is overstated, Retained earnings will have effect on stockholders equity

(2) Due to the omission of recording the accrued salary for the month of january on january 31 and recording them on the month of february will affect the financial statements of january and february. Salaries Expense and Net profit on the Income statement for the year will be erroneously stated and on the Balance sheet, Salaries payable and stockholders equity will be erroneously stated.

Errors in the month of February due to omissions in the month of January:

(a) Income Statement
Salaries Expense	Overstated	Salary expense for the month of January booked in February will increase the expense.
Net Profit	Understated	Expense booked more therefore profit is understated
(b) Balance Sheet
Salaries Payable	No effect	Salary for the month of january which were overlooked was paid in the first salary payment in february
Stockholders equity	Understated	As net profit is understated, Retained earnings will have effect on stockholders equity