For the year ending August 31, Mammalia Medical Co. mistakenly omitted adjusting entries for (1) depreciation of $5,800, (2) fees earned that were not billed of $44,500, and (3) accrued wages of $7,300. Indicate the effect of the errors on (a) revenues, (b) expenses, and (c) net income for the year ended August 31.
Answer:
a. Revenues were understated by $44,500.
b. Expenses were understated by $13,100 ($5,800 + $7,300).
c. Net income was understated by $31,400 ($44,500 – $13,100).