Effects of Errors on Financial Statements
Indicate the Immediate Effect

question 142

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.
$$\begin{array} { | l | c | c | c | c | c | c | } \hline & \text { Total } & \text { Total } & \text { Net } & \text { Total } & \text { Total } & \text { Owners' } \\\hline \text { Error } & \text { Revenue } & \text { Expenses } & \text { Income } & \text { Assets } & \text { Liabilities } & \text { Equity } \\\hline \begin{array} { l } \text { Example: Received } \$ 500 \text { cash for } \\\text { services rendered to a customer, but } \\\text { recorded the transaction as } \$ 50\end{array} & \text { U } & \text { NE } & \text { U } & \text { U } & \text { NE } & \text { U } \\\hline \begin{array} { l } \text { (a.) Recorded twice a sale of services } \\\text { to a customer. }\end{array} & & & & & \\\hline \begin{array} { l } \text { (b.) Recorded the purchase of office } \\\text { equipment on account as a debit to } \\\text { Office Equipment and a credit to } \\\text { Accounts Receivable }\end{array} & & & & & & \\\hline \begin{array} { l } \text { (c.) Failed to record interest accrued } \\\text { at end of period on note payable. }\end{array} & & & & & & \\\hline \begin{array} { l } \text { (d.) Recorded collection of account } \\\text { receivable by debit to Cash and credit } \\\text { to Revenue. }\end{array} & & & & & & \\\hline\end{array}$$

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Definitions:

Tax Incidence

The analysis of the effect of a particular tax on the distribution of economic welfare, essentially who bears the burden of a tax.

Buyers

Individuals or organizations that purchase goods or services for personal use, resale, or as inputs in the production of other goods.

Sellers

Individuals or entities that offer goods or services for sale in the marketplace.

Progressive

A term describing a tax system where the tax rate increases as the taxable amount increases, or broadly referring to policies or principles aiming at promoting social advancement.