Question

Dotty Bluton is the accountant for Healthy Hair, Inc., a local salon. After Dotty finished preparing the financial statements for the year, she realized that she failed to make an adjusting entry to record S2,000 of depreciation expense on equipment. What effect did this error have on Healthy Hair's financial statements? Begin by preparing the entry that Dotty should have recorded prior to preparing the financial statements for the year. (Record debits first, then credits. Exclude explanations from any joumal entries.) Journal Entry Date Accounts Debit Credit Depreciation expense, equipment 2,000 Accumulated depreciation, equipment 2.000 What effect did this error have on Healthy Hair's financial statements? Complete the table below to show the effect of the error (nol having recorded the depreciation entry) on the various balances within Healthy Hair's financial statements. (Complete all answer boxes.) Overstated, Understated or Correct as is Total assets Total liabilities Total equily ........ Total revenues Total expenses ....... Net income

Answer 1

Total assets = Correct as is

Total liabilities = Understated (Accumulated depreciation is understated)

Total equity = Overstated (Depreciation expense is not recorded in expenses)

Total revenues = Correct as is

Total expense = Understated (Depreciation expense is not recorded in expenses)

Net Income = Overstated (Depreciation expense is not recorded in expenses)