Question

Owen Company forgot to accrue $3,000 of salaries its employees had earned at the end of 2019. It paid and expensed the salaries in 2020. It also, in 2019, recorded $4,000 of sales as an account receivable; however, the sale really did not take place until 2020, and it should have recognized the revenue in 2020. It collected the money from the sale early in 2020.

Provide the impact of the errors on the following:

Assets as of 12/31/19: $_____________ Overstated Understated

Assets as of 12/31/20: $_____________ Overstated Understated

Liabilities as of 12/31/19: $_____________ Overstated Understated

Net income for 2020: $_____________ Overstated Understated

Answer 1

Answer)

Assets as of 12/31/19: The Assets for the year ended 12/31/19 were overstated by $ 4,000 as the company recognized account receivable on sales that did not took place until the year 2020.

Assets as of 12/31/20: The Assets for the year ended 12/31/20 were understated by $ 4,000. Though the company has corrected recorded account receivables balance as it has already collected the proceeds from goods worth $ 4,000 sold in the early parts of the year 2020. But the amount of cash balance has been understated by $ 4,000.

Liabilities as of 12/31/19: The liabilities for the year ended 12/31/19 were understated by $ 3,000 as the salary expense to the employee amounting to $ 3,000 had already accrued by the end of year 2019. This amount should have been included in the current liabilities.

Net Income for the year 2020: Net income for the year 2020 has been understated by $ 7,000 as the company recognized salary expense of $ 3,000 in the year 2020 that actually pertained to the year 2019. Moreover, it recognized sales revenue of $ 4,000 that actually pertained to the year 2020 in the year 2019