The Following Errors Were Discovered During January 20x3 (Prior to Any

question 106

Multiple Choice

The following errors were discovered during January 20x3 (prior to any reversing entries) .The accounting period ends December 31. What effect did these errors have on the 20x2 pre-tax income?

• A) Overstated by $2,000
• B) Understated by $2,000
• C) Overstated by $1,000
• D) Understated by $1,000

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Definitions:

Necessary Cash

The minimum amount of cash required by a company to carry out its day-to-day operations.

Contra Asset Account

An account on a company's balance sheet representing deductions from the gross amount of an asset, such as accumulated depreciation on fixed assets.

Allowance for Doubtful Accounts

An accounting method used to estimate the portion of a company's receivables that may not be collected, reducing the accounts receivable balance accordingly.

Uncollectible Accounts

Uncollectible accounts are receivables that a company deems uncollectable and likely will not be recovered, often written off as a bad debt expense.