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College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

Journalize correcting entries for each of the following errors and include a brief explanation.

  1. a. A cash purchase of office equipment for $680 was journalized as a cash purchase of store equipment for $680. (Use the ruling method; assume that the entry has not been posted.)
  2. b. An entry for a $180 payment for office supplies was journalized as $810. (Use the ruling method; assume that the entry has not been posted.)
  3. c. A $620 payment for repairs was journalized and posted as a debit to Equipment instead of a debit to Repair Expense. (Use the correcting entry method to journalize the correction.)
  4. d. A $750 bill for vehicle insurance was received and immediately paid. It was journalized and posted as $660. (Use the correcting entry method to journalize the correction.)

To determine

Prepare correct journal entries for the wrong recorded entries.

Explanation

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

  • ■ Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
  • ■ Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Ruling method of correction of journal entries: This method can be applied when the entries are recorded manually only. Before posting the entries, the error title or amount could be crossed by a line and the correct title and the amount are written above the title or amount. Sometimes the entries would be correctly recorded but posted with incorrect amounts in the ledger accounts. The incorrect amount in the ledger account should be crossed by a line and the correct amount should be written above the incorrect amount. Ensure to include the initials immediately, whenever the amounts are corrected.

Correcting entry method of correction of journal entries: This method can be applied when the entries are recorded manually and computerized system. In one-step method, the correct entry is included and the incorrect entry is undone. In two-step method, first the wrong entry is reversed to cancel the original entry, secondly, the correct entry is recorded.

Prepare correct journal entries for the incorrectly recorded entries.

a.

Record the correct entry by ruling method:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
  Office   
  Store Equipment 680 
   Cash  680
  (Record purchase of equipment)   

Table (1)

Description:

  • ■ Office Equipment is an asset account. Since equipment is bought, asset account increased, and an increase in asset is debited.
  • ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

b.

Record the correct entry by ruling method:

DateAccount Titles and ExplanationsPost. Ref.Debit ($)Credit ($)
    180 
  Office Supplies 810180
   Cash  810
  (Record supplies purchased for cash)   

Table (2)

Description:

  • ■ Office Supplies is an asset account. Since office supplies are bought, asset account increased, and an increase in asset is debited.
  • ■ Cash is an asset account. Since cash is paid, asset account decreased, and a decrease in asset is credited.

c.

Record the correct entry by correcting entry method (one-step method):

DateAccount Titles and ExplanationPost Ref.Debit ($)Credit ($)
  Rent Expense 620 
   Equipment  620
  (Record cancellation of debit to equipment and including the rent expense )   

Table (3)

Description:

  • ■ Rent Expense is an expense account. An increase in expense reduces the equity value, and a decrease in equity is debited.
  • ■ Equipment is an asset account. Since previously recorded equipment account is cancelled, asset account decreased, and a decrease in asset is credited.

Record the correct entry by correcting entry method (two-step method):

Reversing entry:

DateAccount Titles and ExplanationPost Ref...

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