Effects of Errors on Financial Statements
Indicate the Immediate Effect

question 82

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}{lccccc}&\text { Total}&\text { Total }&\text { Profit }&\text { Total }&\text { Total }&\text { Equity }\\\text { Error } & \text { Revenue } & \text { Expense } & & \text { Assets } & \text { Liabilities } \\\text { Example: Received } \$ 500 \text { cash for } & \mathrm{U} & \mathrm{NE} & \mathrm{U} & \mathrm{U} & \mathrm{NE}& \mathrm{U}\\\text {services rendered to a customer, but}\\ \text {recorded the transaction as \( \$ 50 \)}\\\text { (a.) Failed to record depreciation }\\\text { expense for the period.}\\\text { (b.) Recorded payment of an account }\\\text { payable by a credit to cash and debit }\\\text { to an expense account.}\\\text { (c.) Failed to accrue intereset earned}\\\text { on investments during the period.}\\\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}$

Understand changes in accounting estimates and their impact on financial statements.

Describe the composition of shareholders' equity and its components.

Differentiate between various types of shares and their characteristics.

Calculate and interpret key financial ratios including earnings per share and price-earnings ratio.

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Definitions:

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Mathematical expressions that involve a sum of powers in one or more variables multiplied by coefficients.

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Polynomial

A mathematical expression consisting of variables and coefficients, involving only the operations of addition, subtraction, multiplication, and non-negative integer exponentiation of variables.

Special Product Pattern

Formulas that provide shortcuts for expanding certain types of binomials or polynomials.