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    cschweg's Avatar
    cschweg Posts: 2, Reputation: 1
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    #1

    Sep 28, 2009, 03:03 PM
    Effects of errors
    I am having problems with what kind of effect something will have on revenues, expenses, assets and liabilities. I guess the easiest way that I could illistrate is to pose a problem.
    Adjusting entries were omitted. The entries that were omitted were unearned revenue of 21950 and accrued wages of 6100. I need to know how it effects revenue, expenses, net income, assets, liabilities and owner equity and also by how much it would affect them. Also, if you could tell me why it effects them.
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #2

    Sep 28, 2009, 11:57 PM

    In order to do this, you have to know what the adjusting entry is, and therefore what accounts would have been affected by those entries. Since every entry is different, there isn't one simple answer. You have to know what the correct entry, plain and simple.

    I can use one of your illustrations so you hopefully get the idea, but if you don't know the other entries, it won't help. I can't use the unearned revenue thing cause you aren't giving enough info on that one. (That's a deferral, meaning it's important to know exactly what that 21950 number represents.)

    So the accrued wages one. That's an expense, since it's something the company is paying for work done for them. An accrued expense means the expense was incurred (the employees already did the work), but it has not been paid yet. So you have to "recognize" the expense in the books (i.e. record it), and then put it into wages payable since it hasn't been paid.

    Since wages expense is an expense, that's going to obviously affect expenses. Since wages payable is a liability, that will affect liabilities. It will affect them by the amount of that entry, the 6100. You actually have to already know what kind of account it is so that you know how to do the entry. That is, if I didn't know that wages payable was a liability, I wouldn't know that I need to credit it. So if you know the entry, you should also know what kind of account it is already.

    Now how it affects them, i.e. too high or too low, depends on what exactly they are wanting. If they'd just asked how the entry affects them, that'd be easy. But they're saying the entries were omitted. So I don't know if they just want to know how the entry itself affects it, or what effect the omission had. Usually problems like that want to know what effect the omission of the entry had -- that is, they want you to see what happens when you don't do your adjusting entries. ;)

    That entry itself increases both the expense and the liability. So the omission of that entry means your expenses are too low and your liabilities are too low.

    As for "why" -- not sure what you mean by that. All entries affect something, cause they change balances in accounts, so that's why. Or whether you meant why that particular entry would have the exact effect that it did, which I sort of explained as I went.
    32143142's Avatar
    32143142 Posts: 1, Reputation: 1
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    #3

    Sep 30, 2009, 03:02 AM

    Asset is purchased for 10000& sald for 15000 what wiibe the journal entry
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #4

    Sep 30, 2009, 03:09 AM

    Please start your own thread instead of tagging onto someone else's. This is not even related to the original post.

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