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Errors in Assets, Liabilities and Owners' Equity

How would the following errors affect the account balances and the basic accounting equation, Assets, Liabilities, Owners' Equity? How do the misstatements affect income?

a. The purchase of a truck is recorded as an expense instead of an asset.
b. A cash payment on accounts receivable is received but not recorded.
c. Fictitious sales on account are recorded.
d. A clerk misreads a handwritten invoice for repairs and records it as $1,500 instead of $1,800.
e. Payment is received on December 31 for the next three months' rent and is recorded as revenue.

Solution Preview

How would the following errors affect the account balances and the basic accounting equation, Assets _Liabilities _Owners' Equity? How do the misstatements affect income?

a. The purchase of a truck is recorded as an expense instead of an asset.

The Assets will be understated and the expenses will be overstated. Thus the income will be reduced by this error.

b. A cash payment on accounts ...

Solution Summary

This solution explains how the following errors affect the account balances and the basic accounting equation, Assets, Liabilities, Owners' Equity.

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