EX 3-23 Effects of errors on financial statements

The accountant for Healthy Life Company, a medical services consulting firm, mistakenly omitted adjusting entries for (a) unearned revenue earned during the year ($34,900) and (b) accrued wages ($12,770). Indicate the effect of each error, considered individually, on the income statement for the current year ended July 31. Also indicate the effect of each error on the July 31 balance sheet. Set up a table similar to the following, and record your answers by inserting the dollar amount in the appropriate spaces. Insert a zero if the error does not affect the item.

Error (a) Error (b) Over-stated Under-stated Over-stated Under-stated

1. Revenue for the year would be $ ____ $ ____ $ ____ $ ____

2. Expenses for the year would be $ ____ $ ____ $ ____ $ ____

3. Net income for the year would be $ ____ $ ____ $ ____ $ ____

4. Assets at July 31 would be $ ____ $ ____ $ ____ $ ____

5. Liabilities at July 31 would be $ ____ $ ____ $ ____ $ ____

6. Owner’s equity at July 31 would be $ ____ $ ____ $ ____ $ ____

Answers:

Error (a) Error (b)

Over- Under- Over- Under-

stated stated stated stated

 1. Revenue for the year would be  $ 0 $34,900 $ 0 $ 0

 2. Expenses for the year would be  0 0 0 12,770

 3. Net income for the year would be  0 34,900 12,770 0

 4. Assets at July 31 would be  0 0 0 0

 5. Liabilities at July 31 would be  34,900 0 0 12,770

 6. Owner’s equity at July 31 would be  0 34,900 12,770 0