MASTERING CORRECTION OF ACCOUNTING ERRORS

HOMEWORK EXERCISES

Section 1–WHERE ERRORS OCCUR AND HOW THEY ARE FOUND

1. Match the following errors on the left with the type of error on the right.

H 1. A cash sale for $700 was recorded as $7,000. a. Omission

F 2. Annual depreciation was calculated using a useful life of b. Accrual or deferral error
8 years instead of 6 years.
c. Classification error
A 3. A purchase of supplies was never booked.
d. Arithmetic mistake
G 4. A $740 customer check was recorded as $470.
e. Use of incorrect accounting
C 5. Payment for an ad was debited to Utilities Expense. principle
A 6. At year end, no adjusting entry was recorded for annual f. Use of improper accounting
depreciation. estimate
B 7. On March 1, a $1,200 check to pay the premium for a 24- g. Transposition error
month policy was debited to Prepaid Insurance. On
h. Slide error
December 31, the adjusting entry recognized insurance
expense of $450. i. Posting error

2. Match each of the following errors on the left with the type of error on the right.

H 1. A $7,000 equipment purchase booked as $700. a. Omission

E 2. A $1,000 equipment purchase debited to Supplies. b. Accrual or deferral error
D 3. Four cash accounts with balances of $1,000, $4,200, c. Classification error
$3,100 and $1,800 are totaled and entered as
d. Arithmetic mistake
$10,000.
e. Use of incorrect accounting
F 4. GrowCo, which normally takes 2% of accounts
principle
receivable as bad debt, takes 3% this year.
f. Use of improper accounting
B 5. On Oct. 1, a firm receives $1,200 for 12 months’ rent
estimate
and credits Rent Revenue. The year-end adjusting
entry debits Rent Revenue and credits Rent Received g. Transposition error
In Advance for $300. h. Slide error
i. Posting error

© American Institute of Professional Bookkeepers, 2010

Section 2THE BANK RECONCILIATION

Homework Exercises 1
Mastering Correction of Accounting Errors

1. Indicate for each of the following whether you must adjust the bank balance (“Bank”) or ledger Cash
account (“Book”) in your monthly reconciliation.
a. A debit memo BOOK
b. A deposit in transit BANK
c. A bank service charge BOOK
d. A credit memo BANK
e. An NSF check BOOK
f. An outstanding check BOOK
g. Unrecorded interest BOOK
h. Collection by the bank of a note receivable from a customer with accrued interest BANK
2. Below are items for October 200X that you are seeing for the first time.
a. Indicate with an X whether each item should be added to or subtracted from the bank balance, book
balance, or neither (i.e., it does not affect the bank reconciliation).

Bank balance Book balance Not

Add Deduct Add Deduct used
a. Interest earned on cash in the bank x
b. Bank service charge x
c. NSF check from a customer x
d. A night deposit made on October 31 when the x
bank was closed
e. Checks written and mailed October 31 x
f. An October 12 deposit appearing on the bank x
statement as made on October 13
g. Another firm’s check charged to yours x
h. Payment of a phone bill that appears on the x
bank statement but never recorded
i. Collection of principal and interest on a x
customer’s note collected by the bank
b. Prepare the journal entries to conform the ledger Cash account balance with the reconciled bank
balance as of October 31.

a. Cash
Interest income
b. Service Expense
Cash
c. A/R
Cash

h. Utilities Expense
Cash
i. Cash

Homework Exercises 2
Mastering Correction of Accounting Errors

Note Receiveable
Interest income

3. Fiori publishes ratings and reviews of hotels and restaurants for traveling salespeople. As of June 31,
Fiori’s ledger Cash balance is $31,466. The June bank statement balance is $70,616, and includes the
following items.
 Bank service charge for June, $50
 NSF check returned with June bank statement, $2,300
 Note collected for your company by the bank in June, $25,000
 Interest on note collected by the bank in June, $2,500
 Outstanding checks as of the end of June, $21,000
 Deposit in transit at the end of June, $7,000
a. Prepare Fiori’s June bank reconciliation.
b. Prepare the journal entries to conform Fiori’s ledger Cash account balance with the reconciled
bank balance as of June 30.
4. On July 31, Reed Co’s ledger Cash account balance is $25,110, its bank statement balance,
$27,620. Use the data below to reconcile the two balances as of July 31, 20X9:
 Checks outstanding of $6,300
 Check #244 to pay the June gas bill was correctly written for $270, but recorded on Reed’s books
as $720
 $60 for a safe-deposit box—but Reed does not rent one
 A debit memorandum for $200 for a $175 NSF check and $25 bank NSF fee
 A $40 debit memorandum for bank service Reed is seeing for the first time
 A July 31 night deposit of that day’s cash receipts of $3,940 that is not on the bank statement
a. Prepare Reed Co’s bank reconciliation for July 31, 20X9.
Balance per bank statement , July 31 $27,260
Add: July 31, deposit in transit $3,940
Deposit box charge $60
$31,620
Deduct: Outstanding check $6,300
Correct cash balance $25,320

Balance per book $25,110

Add: Error in recording check #244 $450
$25,560
Deduct: NSF check $175
NSF fee $25
Bank service charge $40
Correct cash balance $25,320

Homework Exercises 3
Mastering Correction of Accounting Errors

b. Prepare the journal entries required to conform the company’s book balance with the reconciled
bank balance as of July 31, 20X9.
Cash 450
Utilities expenses 450

A/R 175
Misc. Expense 25
Cash 200

Misc. expese 40
Cash 40

5. Below is Dekin Company’s September check register and September 30 bank statement. Use the
information to prepare Dekin’s September bank reconciliation and adjusting journal entries.

Date Party Ref # Check Deposit Balance

1-Sep $17,489.00
1-Sep $12,505.35 29,994.35
1-Sep Zambrano 446 $2,908.09 27,086.26
2-Sep Theriot 447 466.78 26,619.48
2-Sep Cedeno 448 2,462.99 24,156.49
4-Sep Soto 449 387.97 23,768.52
4-Sep 13,400.00 37,168.52
5-Sep Fontenot 450 1,404.67 35,763.85
7-Sep Ramirez 451 3,145.87 32,617.98
8-Sep Lee 452 1,143.23 31,474.75
8-Sep Soriano 453 9,290.44 22,184.31
9-Sep Derosa 454 3,100.33 19,083.98
11-Sep Edmonds 455 387.22 18,696.76
12-Sep Dempster 456 955.77 17,740.99
12-Sep Soto 457 4,788.78 12,952.21
13-Sep 6,855.91 19,808.12
14-Sep Zambrano 458 6,364.34 13,443.78
20-Sep Blanco 460 1,677.21 11,766.57
22-Sep Johnson 461 985.22 10,781.35
27-Sep Ramirez 462 1,466.35 9,315.00
30-Sep 12,235.66 21,550.66

Homework Exercises 4
Mastering Correction of Accounting Errors

The Friendly Bank

This statement covers: Statement for:

9/1/20X9 TO 9/30/20X9 Dekin Company
123 Bluffs Rd
Anytown, UT 84098

Monthly summary
Previous statement balance on 8/31/20X9 $17,489.00
Checking + Total of 4 deposits for 42,535.89
Account # – Total of 14 withdrawals for 37,535.27
434257 + Interest earnings for 45.27
– Service charges for 35.00
= New balance $22,499.89

Check Date Amount Check Date Amount

paid paid
446 3-Sep $2,908.09 454 12-Sep $3,100.33
448* 5-Sep 2,462.99 456* 13-Sep 955.77
Checks 449 7-Sep 387.97 457 14-Sep 4,788.78
and other 450 7-Sep 1,404.67 458 18-Sep 6,364.34
debits 452* 10-Sep 1,143.23 459 20-Sep 45.54
453 11-Sep 9,290.44 460 21-Sep 1,677.21
Electronic funds transfer–Regions Gas Co-op 25-Sep 1,237.34
NSF returned check—maker BNC Services 28-Sep 1,768.57
NSF fee 28-Sep 25.00
Monthly service fee 31-Sep 10.00

Date Amount
Customer deposit 1-Sep $12,505.35
Customer deposit 5-Sep 13,400.00
Deposits Collection—Note receivable ($9,500 + interest) 11-Sep 9,774.63
and other Customer deposit 14-Sep 6,855.91
credits Interest earnings 31-Sep 45.27

Homework Exercises 5
 Mastering Correction of Accounting Errors

Bank reconciliation for Sep 30

Balance per Bank Statement $22,499.89

Add: Deposit in transit, Sep 30 12,235.66
$34,735.55
Deduct: Outstanding checks 6,451.44
$28,284.11

Balance per Books, Sep 30 $21,550.66

Add: Note Receivable collected by bank 9,500.00
Interest ear on Not Receivable 274.63
Interest earn on average daily balance 45.27
$31,370.56
Deduct: NSF check 1,768.57
NSF fee 25.00
Electronic funds transfer(Gas.co) 1,237.34
Bank Service 10.00
Correccted cash balance, Sep 30 $28,284.11

Cash 9,774.63
Note receivable 9,500.00
Interest income 224.63
Cash 45.27
Interest Income 45.27
A/R 1769.57
Miscellaneous Expense 25.00
Cash 1,793.57
Unknown 45.54
Cash 45.54
Utilities expense 1,237.34
Cash 1,237.34
Miscellaneous expense 10.00
Cash 10.00
Section 3–FINDING AND CORRECTING ERRORS USING THE UNADJUSTED TRIAL BALANCE

1. In the trial balance below, total debits do not equal total credits. Find and correct the likely error(s) to
bring the totals into balance.

Debit Credit
Cash 410
Accounts Receivable 740
Supplies on Hand 1,850
Prepaid Insurance 6,500
Equipment 154,000
Accounts Payable 23,000
Long-term Notes Payable 30,000

Homework Exercises 6
Mastering Correction of Accounting Errors

W. Worthington, Capital 46,260

Construction Revenues 112,000
Wage Expense 29,400
Interest Expense 900
Rent Expense 10,800
Totals 204,600 211,260

Correction

Cash 410
Accounts Receivable 7400
Supplies on Hand 1,850
Prepaid Insurance 6,500
Equipment 154,000
Accounts Payable 23,000
Long-term Notes Payable 30,000
W. Worthington, Capital 46,260
Construction Revenues 112,000
Wage Expense 29,400
Interest Expense 900
Rent Expense 10,800
Totals 211,260 211,260

2. In the trial balance below, total debits do not equal total credits. Find and correct the likely error(s) to
bring the totals into balance.

Debit Credit
Cash 22,500
Accounts Receivable 30,000
Allowance for Doubtful Accounts 2,000
Supplies on Hand 1,850
Prepaid Insurance 6,500
Equipment 144,000
Accum. DepreciationEquipment 48,500
Accounts Payable 3,000
Long-term Notes Payable 50,000
J. Smith, Capital 57,300
Consulting Revenues 102,000
Wage Expense 39,400
Interest Expense 900
Rent Expense 10,800
Repairs Expense 100
Utilities Expense 6,750

Totals 313,300 212,300

Homework Exercises 7
Mastering Correction of Accounting Errors

Debit Credit
Cash 22,500
Accounts Receivable 30,000
Allowance for Doubtful Accounts 2,000
Supplies on Hand 1,850
Prepaid Insurance 6,500
Equipment 144,000
Accum. DepreciationEquipment 48,500
Accounts Payable 3,000
Long-term Notes Payable 50,000
J. Smith, Capital 57,300
Consulting Revenues 102,000
Wage Expense 39,400
Interest Expense 900
Rent Expense 10,800
Repairs Expense 100
Utilities Expense 6,750

Totals 262,800 262,800

Homework Exercises 8
Mastering Correction of Accounting Errors

3. In the trial balance below, total debits do not equal total credits. Find and correct the likely error(s) to
bring the totals into balance.

Debit Credit
Cash 27,500
Accounts Receivable 40,000
Allowance for Doubtful Accounts 2,000
Supplies on Hand 1,850
Prepaid Insurance 6,500
Equipment 104,00
0
Accum. DepreciationEquipment 82,500
Accounts Payable 13,000
Long-term Notes Payable 40,000
S. Jones, Capital 47,300
Consulting Revenues 122,00
0
Wage Expense 38,400
Interest Expense 6,900
Rent Expense 15,400
Repairs Expense 5,500
Utilities Expense 6,75
0
Totals 252,80 306,80
0 0

Homework Exercises 9
Mastering Correction of Accounting Errors

Debit Credit

Cash 27,500

Accounts Receivable 40,000

Allowance for Doubtful 2,000
Accounts
Supplies on Hand 1,850
Prepaid Insurance 6,500
Equipment 104,000

Accum. 28,500
DepreciationEquipment

Accounts Payable 13,000

Long-term Notes Payable 40,000

S. Jones, Capital 47,300

Consulting Revenues 122,000

Wage Expense 38,400

Interest Expense 6,900
Rent Expense 15,400
Repairs Expense 5,500
Utilities Expense 6,750

Totals 252,800 252,800,

4. In the trial balance below, total debits do not equal total credits. Find and correct the likely error(s) to
bring the totals into balance.

Debit Credit
Cash 24,732
Accounts Receivable 75,109
Land 647,604
Accounts Payable 54,811
Note Payable 176,400
JT Howzer, Capital 587,332
Revenues 649,998
Wage Expense 423,788
Rent Expense 110,000
Interest Expense 7,308
Totals 217,149 2,539,933

Debit Credit
Cash 24,732

Homework Exercises 10
Mastering Correction of Accounting Errors

Accounts Receivable 75,109

Land 647,604
Accounts Payable 54,811
Note Payable 176,400
JT Howzer, Capital 587,332
Revenues 649,998
Wage Expense 423,788
Rent Expense 110,000
Interest Expense 7,308
Totals 1,468,541 1,468,541

Homework Exercises 11
Mastering Correction of Accounting Errors

5. In the trial balance below, total debits do not equal total credits. Find and correct the likely error(s) to
bring the totals into balance.

Debit Credit
Cash 158,000
Office Supplies 25,000
Equipment 180,000
Accum. Depreciation—Equipment 44,000
Accounts Payable 47,700
Wages Payable 13,000
W. Shannon, Capital 20,970
W. Shannon, Withdrawals 25,000
Entertainment Revenue 338,000
Rent Expense 26,800
Gas and Oil Expense 3,000
Wage Expense 219,700
Advertising Expense 12,500
Legal Expense 11,400
Totals 636.400 488,670
Cash 158,000
Office Supplies 25,000
Equipment 180,000
Accum. Depreciation—Equipment 44,000
Accounts Payable 47,700
Wages Payable 13,000
W. Shannon, Capital 20,970
W. Shannon, Withdrawals 25,000
Entertainment Revenue 338,000
Rent Expense 26,800
Gas and Oil Expense 3,000
Wage Expense 21,970
Advertising Expense 12,500
Legal Expense 11,400
Totals 463,670 463,670

Section 4–CORRECTING CURRENT PERIOD ACCRUAL ERRORS

1. On August 1 of 20X0, your company borrows $100,000 and signs a 5-year note with an annual
interest rate of 8%. Principal and all accrued interest will be paid at maturity. In January of 20X1,
before the books are closed, you discover that no interest was accrued for 20X0.
a. What is the correcting journal entry?
Interest expense 3,333
Interest payable 3,333

Homework Exercises 12
Mastering Correction of Accounting Errors

b. If no correcting journal entry is recorded, how are the 20X0 income statement and balance sheet,
respectively, affected?
Net income will be overstated and liabilities will be understated.

2. On May 1, 20X0, your company borrows $100,000 and signs a 10%, 5-year note agreeing to pay the
principal and all accrued interest at maturity. In January of 20X1, before the books are closed, you
discover that no interest was accrued for 20X0.

a. What is the correcting journal entry?

Interest expense 6,666

Interest 6,666
b. If no correcting journal entry is recorded, how are the 20X0 income statement and balance sheet,
respectively, affected?

3. On July 1, 20X0, your company lends a supplier $10,000 at an annual interest rate of 12%, with
principal and all accrued interest due at the end of 3 years. In January of 20X1, before the books are
closed, you discover that no interest was accrued for 20X0.

a. What is the correcting journal entry?

Interest receivable 600

Interest income 600

b. If no correcting journal entry is recorded, how are the 20X0 income statement and balance sheet,
respectively, affected?
The net income and asset will be understated

4. On June 1, 20X0, your company sublets warehouse space to James, Inc. for $500 a month. James’s
last rent payment was for October, 20X0. In January of 20X1, before the books are closed, you
discover that your company neither received nor recorded rent for November and December.
a. What is the correcting journal entry?
Rent revuenue 1,000
Revenue 1,000
b. If no correcting journal entry is recorded, how are the 20X0 income statement and balance sheet,
respectively, affected?
Current asset and retained earning will be understated

5. On April 1, 20X0, your company sublets office space to Babin, Co. for $1,000 a month on a lease that
runs from April 1, 20X0 to November 30, 20X0. While preparing the trial balance at year end, you
see that December rent was accrued for Babin even though the lease expired at the end of November.
a. What is the correcting journal entry?
Accrued rent 1,000
Rent income 1,000
b. If no correcting journal entry is recorded, how are the 20X0 income statement and balance sheet,
respectively, affected?

Homework Exercises 13
Mastering Correction of Accounting Errors

The income statement would be overstated and balance sheet will be overstated

6. In January 20X1, before closing the books for 20X0, you notice that the December 20X0 utility bill
of $600 was neither paid nor recorded.
a. What is the correcting journal entry?
Utilities expense 600
Expense payable 600
b. If no correcting journal entry is recorded, how are the 20X0 income statement and balance sheet,
respectively, affected? The liabilities will be understated.

Section 5–CORRECTING CURRENT PERIO

D DEFERRAL ERRORS

1. During 20X0, your company purchases $2,000 of supplies and books the amount as an asset. As you
prepare the trial balance on December 31, you see that there is no 20X0 supplies expense. A quick
physical count reveals $700 of supplies on hand.
a. What is the correcting journal entry?
Supplies expense 1,300
Supplies 1,300
b. If no correcting journal entry is recorded, how are the 20X0 income statement and balance sheet,
respectively, affected?
Net income and asset would be overstated

2. On March 1, 20X0, your company prepays $1,800 to rent equipment for 12 months and you book the
amount as an asset. A review of year-end adjusting entries shows a debit to Rent Expense and credit
to Prepaid Rent for $1,800.
a. What is the correcting journal entry?
Prepaid Rent 300
Rent expense 300
b. If no correcting journal entry is recorded, how are the 20X0 income statement and balance sheet,
respectively, affected?
The income statement would be overstated and the balance sheet would be understated.

3. On June 1, 20X0, your company takes out a 1-year insurance policy for $3,600 and prepays the entire
amount, recording it as an asset. At year-end 20X0, you discover an adjusting entry that records one
year’s insurance expense of $1,800.
a. What is the correcting journal entry?
Prepaid Insurance 1,800
Insurance expense 1,800
b. If no correcting journal entry is recorded, how are the 20X0 income statement and balance sheet,
respectively, affected?
Net income and balance sheet will be understated

Homework Exercises 14
Mastering Correction of Accounting Errors

4. On May 1, 20X0, your company takes out a 2-year insurance policy for $2,400 a year and prepays the
entire $4,800, recording the amount as an expense. At year-end 20X0, you discover an adjusting entry
defers $3,600 of insurance expense.
a. What is the correcting journal entry?
Insurance expense 3,600
Prepaid insurance 3,600
b. If no correcting journal entry is recorded, how are the 20X0 income statement and balance sheet,
respectively, affected?
Income statement and balance sheet will be overstated

5. On July 1, 20X0, your company sublets warehouse space for $600 a year. ABC takes a 2-year lease
and pays $1,200 upon signing, which you record as a liability. At year-end 20X0, you discover that
the adjusting entry recognizes $600 in rent revenue.
a. What is the correcting journal entry?
Rent Revenue 375
Rent receive in advance 375

b. If no correcting journal entry is recorded, how are the 20X0 income statement and balance sheet,
respectively, affected?
Net income will be overstated

6. On October 1, 20X0, your company sublets warehouse space for $900 a year to DEF, which pays in
full upon signing and the amount is recorded as revenue. At year-end 20X0, you discover an adjusting
entry that defers $300 of revenue.
a. What is the correcting entry?
Unearned revenue 300
Revenue 300
b. If no correcting journal entry is recorded, how are the 20X0 income statement and balance sheet,
respectively, affected?
The income statement will be overstated

7. On June 1, 20X0, your company sublets warehouse space for $1,800 a year to GHI, which pays in full
upon signing and the amount is recorded as revenue. At year-end 20X0, you discover an adjusting
entry that transfers $900 from Revenue to Deferred Revenue.
a. What is the journal correcting entry?
Defer revenue 150
Revenue 150
b. If no correcting journal entry is recorded, how are the 20X0 income statement and balance sheet,
respectively, affected?
Equity would be understated and liabilities will be overstated

8. On July 1, 20X0, your company takes out a 2-year insurance policy for $2,400 a year and pays the
entire amount upon signing, recording it as an expense. At year-end 20X0, you discover an adjusting
entry that defers $1,800 by debiting Prepaid Insurance.
a. What is the correcting journal entry?
Prepaid Insurance 1,800

Homework Exercises 15
Mastering Correction of Accounting Errors

Insurance expense 1,800

b. If no correcting journal entry is recorded, how are the 20X0 income statement and balance sheet,
respectively, affected?
The income statement and surplus balance will be understated

Homework Exercises 16