Question

The following journal entries were prepared by an employee of International Marketing Company who does not have an adequate knowledge of accounting.

GENERAL JOURNAL					PAGE 3
Date		Description	Post. Ref.	Debit	Credit
2019
April	1	Accounts Payable		13,500
		Fees Income			13,500
		Performed services on credit
	2	Cash		610
		Telephone Expense			610
		Paid for March telephone service, Check 1917
	3	Office Equipment		8,080
		Office Supplies		910
		Cash			9,500
		Purchased file cabinet and office supplies, Check 1918

(Assume that Office Equipment and Office Supplies were recorded at the correct values.)

Required:
Examine the above journal entries carefully and prepare the correcting journal entries.

Analyze:
After the correcting journal entries have been posted, what effect do the corrections have on the company’s reported assets?

Answer 1

Requirement

Correcting journal entry
General journal	Debit	Credit
Cash	$ 510.00
Suspense account		$ 510.00
(To record correcting entry)

Please note that the credit side is credited in excess of actual amount so in order to post a correcting entry a suspense account will be used. Although correct entry will be as follows

Correct journal entry
General journal	Debit	Credit
Office equipment	$ 8,080.00
Office supplies	$     910.00
Cash		$ 8,990.00

The debit side of trial will be understated by $510 which would have shown a suspense account of 510 on debit side. The correcting entry would be to debit cash by $510 because the cash account was mistakenly over-credited by $510.

Analysis

The reported assets would increase by $510.

The increase is due to increase in balance of cash increase. The book value of cash will be now equal to cash balance in actual.