Effects of Errors on Financial Statements
Indicate the Immediate Effect

question 109

Essay

Effects of errors on financial statements
Indicate the immediate effect of the following errors on each of the accounting elements described in the column headings below, using the following code: O = Overstated; U = Understated; NE = No Effect.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline & \text { Total } & \text { Total } & \text { Net } & \text { Total } & \text { Total } & \text { Owners' } \\\hline \text { Error } & \text { Revenue } & \text { Expenses } & \text { Income } & \text { Assets } & \text { Liabilities } & \text { Equity } \\\hline \begin{array} { l } \text { Example: Received } \$ 500 \text { cash for } \\\text { services rendered to a customer, but } \\\text { recorded the transaction as } \$ 50\end{array} & \text { U } & \text { NE } & \text { U } & \text { U } & \text { NE } & \text { U } \\\hline \begin{array} { l } \text { (a.) Failed to record depreciation } \\\text { expense for the period. }\end{array} & & & & & & \\\hline \begin{array} { l } \text { (b.) Recorded payment of an account } \\\text { payable by a credit to cash and debit } \\\text { to an expense account. }\end{array} & & & & & & \\\hline \begin{array} { l } \text { (c.) Failed to accrue interest earned on } \\\text { investments during the period. }\end{array} & & & & & & \\\hline \begin{array} { l } \text { (d.) Recorded the purchase of office } \\\text { equipment on account as a debit to } \\\text { Supplies Expense and a credit to } \\\text { Accounts Payable. }\end{array} & & & & & & \\\hline\end{array}$$

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Definitions:

Creditor Treatment

The manner in which creditors are dealt with by a debtor, especially in contexts of bankruptcy or insolvency, including priorities of payment and rights.

Federal Bankruptcy Judge

A judicial officer of the United States district court appointed to oversee and decide matters pertaining to bankruptcy cases.

Discharge Order

An order issued by a bankruptcy court that releases a debtor from personal liability for certain specified types of debts.

Creditor Actions

Steps or legal measures taken by creditors to collect debts owed to them by borrowers or defaulting parties.