Indicate the effects of the following errors on each of the items listed in the column headings below. Use the following symbols: O= overstated, U = understated, and NE = no effect. Assume that the company does not use the direct write-off method to account for uncollectible accounts.
Transaction | Gross Profit | Current Ratio | Receivables Turnover Rate | Net Income | Retained Earnings | Working Capital
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a. Recorded uncollectible accounts expense by debiting Sales and crediting Accounts Receivable. |
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b. Wrote off an account receivable deemed uncollectible by debiting Uncollectible Accounts Expense and crediting Accounts Receivable. |
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c. Collected cash from credit customers in settlement of outstanding accounts receivable by debiting Cash and crediting Sales. |
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• Gross Profit = Sales −Cost of Goods Sold
• Current Ratio = Current ÷Assets Current Liabilities
• Receivables Turnover Rate = Sales ÷Average Accounts Receivable (net)
• Working Capital = Current Assets − Current Liabilities
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