An Examination of the Accounts of Kenny Company for the Month

question 125

Essay

An examination of the accounts of Kenny Company for the month of June revealed the following errors after the transactions were journalized and posted:
1. A cheque for $750 from R. Chang, a customer on account, was debited to Cash $750 and credited to Service Revenue, $750.
2. A payment for Advertising Expense costing $520 was debited to Utilities Expense, $250 and credited to Cash $250.
3. A bill for $640 for Office Supplies purchased on account was debited to Office Equipment, $460 and credited to Accounts Payable $460.
4. A payment on account from a customer was credited to cash $450 and debited to Accounts Receivable.
5. A new computer purchased for $5,500 was recorded as a debit to Cash of $5,500 and a credit to Repairs and Maintenance Expense of $5,500.
Instructions
Prepare correcting entries for each of the above, assuming the erroneous entries are not reversed. Explain how the transaction as originally recorded affected profit for the month of June.

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Definitions:

Earnings Per Share

A financial metric calculated by dividing the net earnings available to common shareholders by the average outstanding shares.

Fiscal Year

A fiscal year is the 12-month period used by governments and businesses for accounting and financial reporting purposes, which may not coincide with the calendar year.

Common Stock Dividends

Payments made to shareholders of common stock, usually in the form of cash or additional shares, from the company's earnings.

Accrual Basis

Accrual basis accounting is a method where revenue and expenses are recorded when they are earned or incurred, regardless of when the cash is actually received or paid.