Question

There are several things that could of happened to cause an overstatement of $10,000.

One of them could be, there was an adjustment that wasn't recorded or recorded properly.

Another could, be the owner pulled out some capital from the business, and it wasn't recorded.

There may of been an expense that wasn't recorded or recorded properly at all, could be a deprecation expense.

It would be hard to make a mistake, despite the fact we have competent accountants, however mistakes can happen regardless.

Respond to the above in your own opinion/view in one paragraph.

Answer 1

Overstatement of accounts means reporting the balance in the books of accounts higher than the actual. It can be caused due to clerical errors such as if the person responsible to make the accounts forgets to record any adjustment or entry of expenses or loss such as depreciation expense. It will cause overstatement in the accounts as the expenses would not have been deducted from the account. Another reason could be that the person draws some of the amount from its capital account and forgets to record the same. It will result in high value of capital reflected as compared to the actual. Also, it can be caused due to wrong recording of any adjustment like sometimes; the accountant might record an entry at the higher value than the original by mistake such as wrong position of the numbers in the amount or wrong position of the decimal, etcetera. This can cause overstatement of the accounts. This is a serious issue and requires regular checks and internal audits to correct such errors. This might cause unfair and inaccurate representation of the financial accounts and can give misleading information to the management for decision-making.