Betty Wright, CPA, Was Asked by the Controller of Gore

question 256

Essay

Betty Wright, CPA, was asked by the controller of Gore Company to review the accounting records before financial statements are prepared. Betty reviewed the records and found three errors.
1. Cash paid on accounts payable for $910 was recorded as a debit to Accounts Payable $190 and a credit to Cash $190.
2. The purchase of supplies on account for $500 was debited to Equipment $500 and credited to Accounts Payable $500.
3. The company paid dividends $1,500. The bookkeeper debited Accounts Receivable for $150 and credited Cash $150.
Instructions
Prepare an analysis of each error showing the
(a) incorrect entry.
(b) correct entry.
(c) correcting entry.

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Definitions:

Rational Expectations

An economic theory suggesting that individuals make predictions about future events using all available information, thus their expectations are on average correct.

Rational Expectations

The hypothesis in economics that assumes individuals form forecasts of future events based on all available information in an unbiased and rational manner.

Potential Output

The highest level of output an economy can produce without leading to inflation, when operating at full employment.

Monetary Policy

Actions undertaken by a central bank to control the money supply and interest rates to achieve macroeconomic objectives like controlling inflation, consumption, growth, and liquidity.