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tmqu
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Joined: 29 Jul 2012
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Posts: 1

Posted: 29 Jul 2012 at 12:38 \| IP Logged

Hi, anyone could help me with my question please? I get
confused about one of the examples in the textbook from
Module 9 B, the error correction part. The example is on
page 90-91 from Wiley cpa exam review FAR 2012.

I know the journal entry should have been recorded in
2010 is

Expense Dr.
Wages Payable Cr.

and I know that the error is that it failed to record the
above entry in 2010.

1) But I want to know what journal entry is recorded in
2011 to make the expense overstated, income understated,
wages payable correct, and retained earnings correct?

2) and what does the "correct" hear refer to? For
example, as for the wages payable account, does it mean
the account ending balance in 2011 is correct as it
should have been or the amount happened during the period
is correct?

3) If the company follows the policy of reversing
adjusting entries for accruals——what does this sentence
mean?

Thank you very much!

faisy
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Joined: 08 May 2010
Location: Australia
Online Status: Offline
Posts: 23

Posted: 09 Aug 2012 at 01:15 \| IP Logged

1) But I want to know what journal entry is recorded in
2011 to make the expense overstated, income understated,
wages payable correct, and retained earnings correct?

There are only two ways to correct Correction of Error.
1/ If you have comparative financial statement then
adjust the statement . or
2/ If no comparative statement then adjust your earliest
R.E.
Here in this case you can only choose No.1 Method because
due to net effect of increase and decrease in expense and
income, R.E is showing the correct balance.
------------------------------------------
2) and what does the "correct" hear refer to? For
example, as for the wages payable account, does it mean
the account ending balance in 2011 is correct as it
should have been or the amount happened during the period
is correct?

According to the above statement, B.S (Payable section)
is not affected due to this error. so we don't need to
touch this area.
-------------------------------------------------
3) If the company follows the policy of reversing
adjusting entries for accruals——what does this sentence
mean?

Meaning.. this is not clear ... we need more information
like
1. if same financial year then it should be ok.
2. if Financial Yr end and B.S is not issued then still
it is ok.
3. Once Financial statement has been issued then i think
we would be using only these options.
1/ If you have comparative financial statement then
adjust the statement . or
2/ If no comparative statement then adjust your earliest
R.E.

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Faisy

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