Scribd Logo
Upload

Welcome to Scribd!

  • Correction of Errors

    Uploaded by

    Jess Siazon
    11 views3 pages
    This document discusses the correction of accounting errors, providing examples of different types of errors that may occur. It describes errors that affect one period or multiple periods, such as omitting accruals or deferrals, inventory misstatements, and failure to properly record long-term assets. Specific cases are presented showing the effect of errors like omitting accrued expenses or revenues, recording a prepaid expense as paid or revenue before earned, overstating inventory amounts, and expensing a capital expenditure. The key impacts of errors are misstated net income, retained earnings, and balance sheet account amounts for one or multiple periods depending on the type of error.

    Original Description:

    none

    Original Title

    Correction-of-Errors

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    This document discusses the correction of accounting errors, providing examples of different types of errors that may occur. It describes errors that affect one period or multiple periods, such as omitting accruals or deferrals, inventory misstatements, and failure to properly record long-term assets. Specific cases are presented showing the effect of errors like omitting accrued expenses or revenues, recording a prepaid expense as paid or revenue before earned, overstating inventory amounts, and expensing a capital expenditure. The key impacts of errors are misstated net income, retained earnings, and balance sheet account amounts for one or multiple periods depending on the type of error.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    11 views3 pages

    Correction of Errors

    Uploaded by

    Jess Siazon
    This document discusses the correction of accounting errors, providing examples of different types of errors that may occur. It describes errors that affect one period or multiple periods, such as omitting accruals or deferrals, inventory misstatements, and failure to properly record long-term assets. Specific cases are presented showing the effect of errors like omitting accrued expenses or revenues, recording a prepaid expense as paid or revenue before earned, overstating inventory amounts, and expensing a capital expenditure. The key impacts of errors are misstated net income, retained earnings, and balance sheet account amounts for one or multiple periods depending on the type of error.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 3

     

           GENSANTOS FOUNDATION COLLEGE, INC.


    Bulaong Extension, General Santos City 9500
    BSA/BSAT/BSMA Department
    AUDITING PROBLEMS E.J. SEBUA, CPA
    CORRECTION OF ERROR
    Reference: PAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors
    I. Errors in classification affecting only one period.
    a. Error affecting balance sheet accounts only.
    i. When these errors are not discovered until a subsequent period, corrections must be made and
    balance sheet data are restated for comparative purposes.
    b. Errors affecting income statement accounts only
    i. These errors do not affect the Net Income of the subsequent period and do not require
    adjusting entries, but the misstated accounts should be restated for comparative purposes.
    II. Errors affecting both income statement and balance sheet accounts
    a. Counterbalancing errors in adjusting entries (e.g. an error in ending inventory of one period) affect two
    periods and are known as self-correcting errors.
    For example, overstating ending inventory of 2015 will overstate the income of 2015 and understate the
    income of 2016.
    The effects of this type of error are:
     Net income amounts of two successive periods are incorrectly stated.
     Certain account balances in the balance sheet at the end of the first period are incorrectly stated,
    but
     The account balances in the balance sheet of the succeeding period are correctly stated.
    Examples of errors
     Omission of adjustments for prepaid, deferred and accrued items at the end of the period.
     Misstatement of inventories
     Errors in purchases cut-off
     Errors in sales cut-off

    1. OMITTING ACCRUALS
    Case #1 Omitting Accrued Expenses
    12/31/16 12/31/17 1/1/18
    Expense (wages)
    Net Income
    Payable (wages)
    Retained earnings, end

    Case #2 Omitting Accrued revenue

    12/31/16 12/31/17 1/1/18


    Revenue (interest)
    Net Income
    Receivable (interest)
    Retained earnings, end

    2. OMITTING DEFERRALS (Prepaid Expense and Unearned Revenue)

    Case #3 (Recorded as Expense when cash was paid)

    12/31/16 12/31/17 1/1/18


    Expense (insurance)
    Net Income
    Prepaid Asset
    Retained earnings, end

    Case #4 (Recorded as Revenue when cash was received)


    12/31/16 12/31/17 1/1/18
    Page 1 of 3
            GENSANTOS FOUNDATION COLLEGE, INC.
    Bulaong Extension, General Santos City 9500
    BSA/BSAT/BSMA Department
    AUDITING PROBLEMS E.J. SEBUA, CPA
    Revenue (earned)
    Net Income
    Liability (unearned rev.)
    Retained earnings, end

    3. INVENTORY ERRORS
    Inventory errors could be:
     A misstatement of the ending inventory balance, which is followed by a misstatement of the beginning
    balance for the next period, or
     A misstatement of purchases for the period (improper cut-off)
    Case #5 (Overstated Inventory count)

    2016 2017 2018


    Beginning Inventory
    + Purchases
    Goods available for sale
    -Ending Inventory
    Cost of goods sold
    Net Income
    Retained earnings
    Accounts payable

    Case #6 (Overstated purchases**)


    2016 2017 2018
    Beginning Inventory
    + Purchases
    Goods available for sale
    -Ending Inventory*
    Cost of goods sold
    Net Income
    Retained earnings
    Accounts payable
    *Determined by physical count; **Vendor shipped goods FOB Destination. Goods were not received by 12/31,
    but recorded as purchases and not included in the physical inventory count.
    4. Another type of error that will affect the income of one period only and affect the balance sheet account for all
    periods.

    Case #7 (failure to record depreciation or amortization)

    2016 2017 2018


    Depreciation
    Accumulated Depreciation
    Net Income
    Retained earnings

    5. Other errors will affect the income for several periods, such as misrecording the cost of a long-lived asset (i.e.,
    depreciation will be misstated for all periods).

    Case #8 (capitalizable expenditure of P150,000 – life 3 years – was expensed as repairs and maintenance)

    2016 2017 2018


    R&M
    PPE
    Depreciation
    PPE, Net of Accum. Dep.

    Page 2 of 3
            GENSANTOS FOUNDATION COLLEGE, INC.
    Bulaong Extension, General Santos City 9500
    BSA/BSAT/BSMA Department
    AUDITING PROBLEMS E.J. SEBUA, CPA
    Net Income
    Retained earnings

    Page 3 of 3

    You might also like