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Accounting Changes and Error Analysis

Accounting Changes and Error Analysis. Chapter 22. Intermediate Accounting 12th Edition Kieso, Weygandt, and Warfield. Prepared by Coby Harmon, University of California, Santa Barbara. Section 2 – Error Analysis. Counterbalancing Errors. Will be offset or corrected over two periods.

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Accounting Changes and Error Analysis

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  1. Accounting Changes and Error Analysis Chapter 22 Intermediate Accounting 12th Edition Kieso, Weygandt, and Warfield Prepared by Coby Harmon, University of California, Santa Barbara

  2. Section 2 – Error Analysis Counterbalancing Errors • Will be offset or corrected over two periods. • If company has closed the books: • If the error is already counterbalanced, no entry is necessary. • If the error is not yet counterbalanced, make entry to adjust the present balance of retained earnings. For comparative purposes, restatement is necessary even if a correcting journal entry is not required. Look page 1175

  3. Section 2 – Error Analysis Counterbalancing Errors • Will be offset or corrected over two periods. • If company has not closed the books: • If error already counterbalanced, make entry to correct the error in the current period and to adjust the beginning balance of Retained Earnings. • If error not yet counterbalanced, make entry to adjust the beginning balance of Retained Earnings. LO 9 Analyze the effect of errors.

  4. Section 2 – Error Analysis Noncounterbalancing Errors Not offset in the next accounting period. Companies must make correcting entries, even if they have closed the books. LO 9 Analyze the effect of errors.

  5. E22-19 (Error Analysis; Correcting Entries)A partial trial balance of Julie Hartsack Corporation is as follows on December 31, 2008. Error Analysis Example Instructions (a)Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2008? LO 9 Analyze the effect of errors.

  6. Error Analysis Example • Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2008? 1. A physical count of supplies on hand on December 31, 2008, totaled $1,100. 2. Accrued salaries and wages on December 31, 2008, amounted to $4,400. LO 9 Analyze the effect of errors.

  7. Error Analysis Example • Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2008? 3. The correct accrued interest on investments amounts to $4,350 on December 31, 2008. 4. The unexpired portions of the insurance policies totaled $65,000 as of December 31, 2008. LO 9 Analyze the effect of errors.

  8. Error Analysis Example • Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2008? 5. $28,000 was received on January 1, 2008 for the rent of a building for both 2008 and 2009. The entire amount was credited to rental income. 6. Depreciation for the year was erroneously recorded as $5,000 rather than the correct figure of $50,000. LO 9 Analyze the effect of errors.

  9. E22-19 (Error Analysis; Correcting Entries)A partial trial balance of Julie Hartsack Corporation is as follows on December 31, 2008. Error Analysis Example Instructions (b) Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2008? LO 9 Analyze the effect of errors.

  10. Error Analysis Example (b) Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2008? 1. A physical count of supplies on hand on December 31, 2008, totaled $1,100. 2. Accrued salaries and wages on December 31, 2008, amounted to $4,400. LO 9 Analyze the effect of errors.

  11. Error Analysis Example (b) Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2008? 3. The correct accrued interest on investments amounts to $4,350 on December 31, 2008. 4. The unexpired portions of the insurance policies totaled $65,000 as of December 31, 2008. LO 9 Analyze the effect of errors.

  12. Error Analysis Example (b) Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2008? 5. $28,000 was received on January 1, 2008 for the rent of a building for both 2008 and 2009. The entire amount was credited to rental income. 6. Depreciation for the year was erroneously recorded as $5,000 rather than the correct figure of $50,000. Look page 1176 & 1177 – another example

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