Ask Me Help Desk - How to correct an entry

You discover an entry error which understates expenditures and revenues in excess of $5000. What do you do to fix it?

No one can know how to fix it if they don't know what the errors were. Knowing expenditures - and call them expenses because that's two different things - and revenues are off doesn't tell us a thing about what actually happened in error.

If you know an entry is in error, you can quite literally reverse the entry back out. Then do the correct entry. That's the easy way without thinking too hard about it.

Although I don't see how "an" error (as in one) would affect both expenses and revenues at the same time, so I'm still not quite sure what's going on here.

Thank you for trying to help me. It was an interview question and I didn't know how to answer the question. I think the question was more like this: If I discover a department made an incorrect accounting entry which understates expenditures and revenues in excess of $50,000. What do I do?

To understand what action you take in adjusting expense and revenue, you must understand that expense is a debit balance and revenue takes a credit balance. Now, to understate an expense account is to put too little on the debit side. So you debit the difference to bring it up to par. On the revenue account, the credit side is short by the difference, so you credit to bring it up to par.
Dr expense(or the item involving out flow of cash)
Cr revenue ( or the item involving inflow of cash

The real answer, in real life, is that the first thing you do is try to find out what caused this error. That's a pretty big darn error. If the question didn't ask what entry to make, but rather what would you "do," then what you do is find out what the heck is going on to cause both expenses (not expenditures) and revenues to both be understated.

You can't know how to correct the problem until you know what the problem is. And I'd want to know who is making $50,000 errors.

If you are speaking of a job interview, and it was worded how you said it the second time, how to correct this error is probably not what they were looking for. If it were me doing the interviewing, I would want to see that you recognize that you need to find the problem.

I did accounting for 20 years and I teach the subject, and I darn well know how to do debits and credits, so please don't try to instruct me on how to do them.

First of all, I think there's a more important issue here if that question was asked in an interview than just debits and credits. Who says the answer they want even has to do with making entries? The interpretation of the question is purely opinion so you can't decide you're right and I'm wrong.

Second, yes, it's a terrifically good idea to know what the error was in order to correct the error. It doesn't say one expense is understated. It says "expenditures," which is a bad use of the term, but forgetting that, it's plural. As in total expenses. How do you even know how many errors this might have been? Maybe there's several mistakes, some too high and some too low, that net out to too low. Do you know that? Do you therefore KNOW how you must correct it? No, you don't.

But yes, it's possible to offer an opinion about the error without knowing exactly what it was. And I did. In my first post. My second post was responding to the fact that the OP added some additional information that I thought needed addressed, because I believe that changed the concept of his/her original question. You apprently did not catch onto that fact.

Did you bother to read my first post before jumping on giving that negative on the second post? The negative was completely undeserved, not to mention incorrect, and just downright silly and nit-picky. I've seen responses of yours that were outright factually wrong (not opinion).

Thank you both. This is the first time I've used this web site. I appreciate that you all and others are there to observe and answer these questions. Job interviews are not much fun and I'm better at coming up with answers after it's over (not a quick thinker) but this one did confuse me because of the way it was worded. I do know to debit expense and credit revenue but after thinking more about it, they probably did wonder how I would answer on handling working the mistake with the department as well. Who knows, maybe a previous Accountant didn't communicate well and they were checking out my skills in that area. Thanks again.

Quote:

Originally Posted by orange peel

Job interviews are not much fun and I'm better at coming up with answers after it's over (not a quick thinker) but this one did confuse me because of the way it was worded.

Ha - I know exactly how you feel. I can always manage to think of a brilliant answer, about a week later. :rolleyes: Interviews can be nerve-wracking, and sometimes I think they ask weird questions just to throw you off-guard and see how you handle it. And they can get prejudiced by a past worker. I can think of a specific job that I didn't get because of something like that -- the guy already had a mind-set and I doubt anything I said would have satisfied him. (Short of out-right lying, and then I'd have to know what lie he wanted to hear.)

But good luck to you.