Question

Assume that a firm reports net income of $45,000 prior to making adjusting entries for the following items: expired rent, $3,500; depreciation expense, $4,100; and supplies used, $1,800. Assume that the required adjusting entries have not been made. What effect do these errors have on the reported net income

Answer 1

Answer:

The errors have resulted in the overstatement of net income by $9,400. Actual net income is $35,600

Explanation:

Expired rent is usually accounted for by debiting rent expense and crediting prepaid rent account. As such this is an additional expenses that will be deducted from sale to get the net income.

Depreciation expense on asset is recorded by debiting depreciation expense and crediting accumulated depreciation. Again, it is an additional expenses that will be deducted from sale to get the net income.

Supplies used is a debit to supplies expense and a credit to the supplies account (B/s). Hence, it is an additional expenses that will be deducted from sale to get the net income.

Hence the total additional expense to be recorded

= $3,500 + $4,100 + $1,800

= $9,400

When recorded, net income

= $45,000 - $9,400

= $35,600