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AIPB MASTERING CORRECTIONS OF ZCCOUNTING ERRORS
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If a company calculates bad debt expense at 1 % of sales but the percentage used was 5% of sales, this is ... a. a transposition error b. use of an improper estimate c. a slide error d. use of an incorrect accounting principle b. use of an improper estimate 1A $300 payment of an electric bill debited to Cash is a(n) ________________ error. posting If depreciation expense of $1,000 is posted as $100, this is ... a. a transposition error b. a classification error c. a slide error d. use of an incorrect accounting principle c. a slide error SiliCo painted its building at a cost of $10,000 and decided to capitalize it (debit Buildings), instead of expensing it (debit Repairs and Maintenance Expense). This is ...
a. a transposition error b. a classification error c. an improper estimate d. use of an incorrect accounting principle d. use of an incorrect accounting principle The correction of an error is determined by which _______ are affected and _______ the error was found. accounts; when The _________ ____________ helps to reveal errors by verifying that total ____________ _______________ debits and credits are in balance. trial balance; ledger accounts Errors may be uncovered in the year-end financial audit by the _______________ _____________________. external error List three routine accounting procedures during which accounting errors may be discovered.
Any 3 of the following 5 are correct
- monthly bank reconciliation
- preparation of the trial balance
- review of periodic adjustments to the accounts
- routine internal audits
- year-end financial audit Name seven common types of accounting errors.
a. a posting error b. a classification error c. an arithmetic mistake d. a slide a. a posting error A rent payment check issued for $450 was recorded as a credit to Cash for $540. This is ... a. a slide b. an incorrect account classification c. an arithmetic mistake d. a transposition error d. a transposition error CabotCo's accountant forgot to record annual interest expense. This is ... a. a transposition error b. an arithmetic mistake c. use of an incorrect accounting principle d. an accrual error d. an accrual error An accounting error is defined as the incorrect _______ and ______________ of facts about the business that existed at the time a(n) _____________ or ________________ was recorded. recording; reporting; event; transaction Most differences between the end-of-month bank balance and cash account balance are caused by differences in _______. timing
An error in depreciation expense is likeliest to be discovered when _________________ are made to the accounts. adjustments Name three specific accounting activities that may uncover errors.
Any 3 of the following 6 is correct:
- Monthly bank reconciliation
- Preparation of the trial balance
- Review of periodic adjustments to the-accounts
- Routine internal audits
- Year-end financial audit
- By chance To find the correct bank statement cash balance for a reconciliation: a. deduct from the end-of-month bank balance all checks outstanding b. deduct from the end-of-month bank balance only those checks outstanding that were written in the current period c. deduct from the end-of-month bank balance checks outstanding that were written in the current period and add checks outstanding that were written in previous periods d. add to the end-of-month bank balance all checks outstanding a. deduct from the end-of-month bank balance all checks outstanding Which of these will make the bank balance lower than the book balance? a. a payment your company authorized the bank to make to a third party and which your company has not recorded
a. adding $450 to the end-of-month bank balance Cash deposits in the company checking account are a _______ to the company bank statement, but a _______ to the company ledger Cash account. credit; debit A bank _______ memorandum shows an amount added by the bank to the company checking account; a bank _______ memo-randum shows an amount subtracted by the bank from the company checking account. credit; debit To reconcile the monthly bank balance, a $630 check outstanding is ______________ the current bank balance. deducted from When a bank or creditor inquires about company finances, the ledger Cash account usually cannot be reported as a(n) _______ until it has been reconciled. asset What are the three primary goals of a bank reconciliation?
To review information needed to bring company accounting records up to date at the end of the month or other period;
to verify that the ledger Cash account balance at the end of the month or other period is accurate and to correct any errors; and
to verify that the checking account balance at the end of the month or other period is accurate and to alert the bank of any errors. When reconciling the Cash account, direct deposits such as wire transfers are: a. deducted from the Cash balance
b. added to the Cash balance c. deducted from the bank balance d. added to the bank balance b. added to the Cash balance In a bank reconciliation, which of the following items are added to the end-of-month ledger Cash account balance? a. outstanding checks b. interest earned on average checking account balance c. deposits in transit from the month covered by the bank statement d. none of the above b. interest earned on average checking account balance A canceled check written for $110 is enclosed in your company's bank statement, but the statement shows that the check cleared for $100. When you do the bank reconciliation, you should ... a. add $10 to the bank balance b. add $10 to the ledger Cash account balance c. subtract $10 from the ledger Cash account balance d. subtract $10 from the bank balance d. subtract $10 from the bank balance A company check is a _______ to Cash, but is a _______ on the bank statement. credit; debit Upon completion of a bank reconciliation, the company records adjust-ments to the ledger _______ account. Cash
b. have a credit balance c. may have a debit or a credit balance d. appear only on the unadjusted trial balance a. have a debit balance A $120,000 difference in trial balance totals may be caused by: a. the Accumulated Depreciation balance of $60,000 being listed as a debit b. the Accumulated Depreciation balance of $60,000 being listed as a credit c. the Purchases balance being listed as a $60,000 debit d. the Purchases balance being listed as a $120,000 debit a. the Accumulated Depreciation balance of $60,000 being listed as a debit You discover a $900 difference in your trial balance totals. You have narrowed your investigation to the following account balances. Which one(s) may contain a transposition? (There may be more than one possible answer.) a. Cash $ b. Cost of Goods Sold $2, c. Taxes Payable $ d. Additional Paid-In Capital $1, b. Cost of Goods Sold $2, or d. Additional Paid-In Capital $1, Depreciation Expense for the building your company has owned for several years is listed on: a. the unadjusted trial balance b. the adjusted trial balance c. the post-closing trial balance
d. all of the above b. the adjusted trial balance When an account balance seems to be in the wrong column on the trial balance, it may be an error-or it may be the correct balance of a(n) __________________
contra account The balance of an account is the side of the account-whether debit or credit-on which a(n) _______ is recorded. increase A difference of $540 in the totals may be the result of a(n) ___________ or
transposition; slide If there is a Notes Payable balance on the adjusted trial balance, you would also expect to see two other accounts: ___________ _____________ and _____________ _____________. Interest Payable; Interest Expense List three errors that do not cause a difference in trial balance totals.
- a transaction not recorded on company books
- the same incorrect amount recorded on both the debit and credit side of a journal entry
- an amount recorded in an incorrect account that has the same debit or credit balance as the correct account (such as an amount debited to Rent Expense instead of Equipment or credited to Revenue instead of Accounts Payable). Expense accounts ...
a. failure to record an adjusting entry b. an overstated liability and an overstated e-e c. a transaction that was not recorded d. none of these errors can be detected on the unadjusted trial balance d. none of these errors can be detected on the unadjusted trial balance On the trial balance, total debits are $38,200 and total credits are $41,800. This error may have been caused by a transposition in ... a. the Inventory balance of $ b. the Accumulated Depreciation balance of $7, c. the Accounts Payable balance of $ d. the Retained Earnings balance of $2, b. the Accumulated Depreciation balance of $7, Which of the following accounts may appear on all the adjusted and post-closing trial balances? a. Purchases b. Purchase Discounts c. Notes Payable d. all of the above c. Notes Payable If the trial balance does not balance, the steps to take, in the correct order, are as follows: Make sure the _________ _________ were correctly transferred to the _______________ _________________. account balances, trial balance If the trial balance does not balance, the steps to take, in the correct order, are as follows:
See if the ___________ __________ _____________ have been calculated correctly. ledger account balances If the trial balance does not balance, the steps to take, in the correct order, are as follows: Check the __________ __________ and ____________ for errors. journal entries, postings A contra account has a(n) ________________ balance from its related account. opposite In the revenue section of the trial balance, you should not see a balance in the ___________ column, unless it is for a revenue _______________. debit; contra account If trial balance total debits are $70 more than total credits, there may be an error of$ ______ , caused by listing the $35 balance in the __________________ column. 35; debit A post-closing trial balance should not include a(n) _________________ account or a(n) ___________________ account. revenue; expense Current period errors are those made and found ... a. before the balance sheet accounts have been closed b. before the income statement accounts have been closed c. before either the balance sheet accounts or the income statement accounts have been closed d. before December 31 of the year in which they occurred b. before the income statement accounts have been closed
If an accrued revenue is understated and the error is discovered in the same accounting period, a correction is made with a(n)_____________ journal entry for the amount of the error adjusting An error not discovered until after the books have been closed is corrected with a(n) ___________ _____________ ____________. prior period adjustment If interest receivable was not accrued at the end of 20Xl, then 20Xl revenues will be ____________ , and income will be ____________. understated; understated If an accrual of rent expense was omitted at the end of 20Xl, then 20Xl liabilities would be ___________ and income would be ______________. understated; overstated In 20X4, accrued advertising expense of $7,500 was incorrectly recorded as $9,000. a. Show the correction for this error if it is discovered in 20X4. b. Show the effect of the error on the 20X4 income statement if the error is not discovered until 20X5. c. Show the effect of the error on the 20X4 balance sheet if it is not discovered until 20X5. a. The correction for this error if it is discovered in the same year (20X4) is a simple entry to reduce the amount of the overstatement: Advertising Payable 1, Advertising Expense 1, b. The effect of the error on the 20X4 income statement if it is not discovered until 20X5 is as follows: Advertising expense overstated by $1,
Net income understated by $1, c. The effect of the error on the 20X4 balance sheet if it is not discovered until 20X5 is as follows: Advertising Payable overstated by 1, Retained earnings understated by 1, In 20X3, interest revenue of $1,000 was accrued; the correct amount was $800. a. Show the correction for this error if it is discovered in 20X3. b. Show the effect of the error on the 20X3 income statement if it is not discovered until 20X4. c. Show the effect of the error on the 20X3 balance sheet if it is not discovered until 20X4. a. The correction for this error when discovered in the same year (20X3) is a simple entry that reverses the overstatement: Interest Revenue 200 Interest Receivable 200 b.. The effect of the error on the 20X3 income statement if it is not discovered until 20X4 is as follows: Interest revenue overstated by $ Net income overstated by $ c. The effect of the error on the 20X3 balance sheet if it is not discovered until 20X4 is as follows: Interest receivable overstated by $ Retained earnings overstated by $ In 20Xl, building supplies expense of $750 was accrued; it should have been $1,250. a. Show the correction for this error if it is discovered in 20Xl.
Interest Revenue 90 b. The effect of the error on the 20X0 income statement if it is not discovered until 20Xl is as follows: Interest revenue understated by $ Net income understated by $ c. The effect of the error on the 20X0 balance sheet if it is not discovered until 20Xl is as follows: Interest Receivable understated by $ Retained earnings understated by $ Missing or inaccurate accruals are often found ... a. when an expense is paid b. when revenue is received c. when the financial statements are prepared d. all of the above d. all of the above A more precise definition of prior period error would include one that is found ... a. after the income statement accounts have been closed for the year in which the errors were made b. after the balance sheet accounts have been closed for the year in which the errors were made c. after either the balance sheet accounts or the income statement accounts have been closed for the year in which the errors were made d. after December 31 of the year in which they occurred a. after the income statement accounts have been closed for the year in which the errors were made
In 20Xl, the accrual of rent expense was overstated by $1,000. A correcting entry made before the books are closed would include: a. a debit to Rent Expense for $1, b. a credit to Rent Expense for $1, c. a credit to Rent Payable for $1, d. a credit to Cash for $1, b. a credit to Rent Expense for $1, ___________ period errors affect revenue and expense accounts that are still open. current Accounting error correction depends on the _______ in which the error is discovered. period Errors that affect revenue or expense accounts from prior periods cannot be directly corrected because these account balances have been
closed If wages payable were not accrued at the end of 20Xl, then 20Xl expenses were ____________ and 20Xl net income was ___________________ understated; overstated Failure to accrue interest revenue during the current year will result in an understatement of the two balance sheet accounts _______________ and
Interest Receivable; Retained Earnings.
