Question

After preparing an unadjusted trial balance at year-end, the accountant for Chu Design Company discovered the following errors: 1) The payment of the $225 telephone bill for December was recorded twice 2) The payment of a $1,000 note payable was recorded as a debit to Cash and a debit to Notes Payable 3) A $900 withdrawal by the owner was recorded to the correct accounts as $90 4) An additional investment of $5,000 by the owner was recorded as a debit to G. Chu, Capital and a credit to Cash 5) A credit purchase of office equipment for $1,800 was recorded as a debit to the Office Equipment account with no offsetting credit entry Required Using the form below, indicate which error would cause the trial balance to be out of balance. If yes, state which account increases or decreases and by how much Error: Yes/No Account overstated, by how much | Account understated, by how much

Answer 1

Error: Yes/No	Account overstated, by how much	Account understated, by how much
1) No
2) Yes	Cash $2,000
3) No
4) No
5) Yes		Accounts Payable $1,800

Explanations:

The trial balance will be out of balance only in case of errors where the debits and credits do not match. Thus, the errors 1, 3, and 4 will not cause it to be out of balance.

2) Since there are two debits and no credit, the trial balance will be out of balance. The debit to the notes payable is correctly recorded. However, instead of a credit to Cash, there is a debit of $1,000. Thus, cash account is overstated by $2,000.

5) Since no credit entry is recorded, the trial balance will be out of balance. The debit to the office equipment account is correctly recorded however, there is no credit to the accounts payable account resulting in an understatement of accounts payable by $1,800.