Question

Oriole Company has an inexperienced accountant. During the first month on the job, the accountant made the following errors in journalizing transactions. All entries were posted as made.
1. The purchase of supplies for $760 cash was debited to Equipment $200 and credited to Cash $200.
2. A $530 dividend was debited to Salaries and Wages Expense $800 and credited to Cash $800.
3. A payment on account of $700 to a creditor was debited to Accounts Payable $230 and credited to Cash $230.

Prepare the correcting entries.

Answer 1

Answer:

Part 1. The purchase of supplies for $760 cash was debited to Equipment $200 and credited to Cash $200.

Merchandise $ 760 (debit)

Cash $ 560 (credit)

Equipment $200(credit)

Part 2. A $530 dividend was debited to Salaries and Wages Expense $800 and credited to Cash $800.

Cash $270 (debit)

Dividend $530 (debit)

Salaries and Wages $ 800 (credit)

Part 3. A payment on account of $700 to a creditor was debited to Accounts Payable $230 and credited to Cash $230

Account Payable $470(debit)

Cash $470 (credit)

Explanation:

Part 1. The purchase of supplies for $760 cash was debited to Equipment $200 and credited to Cash $200.

Derecognise the $ 200 Equipment recored in error.The Cash figure was understated, therefore derecognise a further $560 to reflect the outflow of economic benefits. Lastly the Merchandise or Inventory Account must the recognised. This is the correct asset account to the original transaction.

Part 2. A $530 dividend was debited to Salaries and Wages Expense $800 and credited to Cash $800.

Recognise an equity element - Divident. Assets of cash were overstated therefore recognise the overstated amount of $270. Salaries and Wages Account was recognised in error therefore de-recognise this expense account.

Part 3. A payment on account of $700 to a creditor was debited to Accounts Payable $230 and credited to Cash $230

The transactions was recorded in correct accounts for the debit and credit but with wrong or understated amounts. Recognise a further $230 for Accounts Payable and a further 4230 for Cash