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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Describe two errors that affect only a company’s income statement.

To determine

Explain the two errors that affect only the income statement of a company.

Explanation

Errors: The comparability and consistency of the financial statements decreases when a company records arithmetic mistakes, or errors. Such errors do require adjustments to make the financial information more reliable, and more relevant.

Errors that affect only the income statement: These errors include the amount debited or credited to the different accounts that belong to the same classification.

The following are the errors:

  • Instead of crediting Sales Revenue, if Rent Revenue is credited, the company would reclassify the item, pass a correct journal entry to reclassify the items, and restate the financial statements, if the error is discovered before issuing the financial statements...

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