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:

Actual Warranty Costs

The real expenses incurred when repairing or replacing products under warranty.

State Unemployment Tax

A tax imposed by state governments paid by employers to fund unemployment benefits for workers who have lost their jobs.

Federal Unemployment Tax

A tax paid by employers to fund the federal government's oversight of state unemployment programs.

Payroll Transactions

Payroll transactions involve the process of calculating, distributing, and recording payments made to employees for their services.