Question

For the year ending December 31, Beard Clinical Supplies Co. mistakenly omitted adjusting entries for (1) $7,620 of unearned revenue that was earned, (2) earned revenue that was not billed of $10,480, and (3) accrued wages of $5,950. Indicate the combined effect of the errors on (a) revenues, (b) expenses, and (c) net income.

Answer 1

Answer:

See explanation section

Explanation:

Since Beard Clinical Supplies Co. omitted adjusting entries that leads to either decrease or increase in the revenues, expenses, and net income.

Transactions 1 and 2 are related to Revenue.

Transaction 3 is related to Expenses.

All transactions are related to Net Income.

Journal entry will help to determine the effect.

Transaction - 1: Unearned Revenue (Debit) - $7,620

Service Revenue (Credit) - $7,620

Transaction - 2: Accounts Receivable (Debit) - $10,480

Service Revenue (Credit) - $10,480

Transaction - 3: Wages expense (Debit) - $5,950

Wages Payable (Credit) - $5,950

A) Revenue = Transaction (1 + 2) = $7,620 + 10,480 = $18,100 was missing. It means revenues were understated (decreased) by $18,100.

B) Expenses = Transaction 3 = $5,950. It was understated also.

C) Net Income = $18,100 - 5,950 = $12,150. Therefore, Net income was also understated.