Analyze the following separate errors and describe how each would affect the 10-column work
sheet Below. Explain whether the error is likely to be discovered in completing the work sheet and, if
not, the effect of the error on the financial statements.
a. Assume that the adjustment for supplies used consisted of a credit to Supplies for $3,200 and
a debit for $3,200 to Supplies Expense.
b. When the adjusted trial balance in the work sheet is completed, the $17,500 Cash balance is
incorrectly entered in the Credit column.
Balance sheet as of June 30, 2005
NON CURRENT ASSET
Property, plant equiptment $97, 250
CURRENT ASSETS
Prepaid insurance $2,300
Supplies $3,200
Cash $17,500
$23,000
$23,000
+$97,250
Total Assets $120,250
LIABILITIES AND EQUITY
LONG TERM LIABILITY
Long term notes payable $19,000
CURRENT LIABILITIES
Accounts payable $6,350
Interest payable $240
Rent payable $200
Wages payable $1,600
Property taxes payable $900
Long term notes payable (current portion) $5,000
Total Liabilities $33,290
OWNERS EQUITY
S.Adams capital $77,600
S. Adams withdrawls ($30,000)
$47,600
Net Income $39,300
Total Liabilities and Owners Equity $120,250
a. The error in the adjustment for supplies used would affect the Supplies and Supplies Expense accounts in the worksheet. The incorrect entry credits $3,200 to the Supplies account and debits $3,200 to the Supplies Expense account. This error will overstate the amount of supplies on hand (as it credits supplies instead of debiting supplies) and understate the supplies expense (as it debits supplies instead of crediting supplies expense).
If this error is not discovered in completing the worksheet, it will affect the financial statements. The overstatement of supplies will lead to an inaccurate balance sheet with inflated assets. Additionally, the understatement of supplies expense will result in an understated amount of expenses on the income statement, leading to an overstated net income.
b. The error in entering the Cash balance of $17,500 in the Credit column of the adjusted trial balance will affect the Cash account in the worksheet. This error will incorrectly show that the Cash account has a credit balance instead of the expected debit balance.
If this error is not discovered in completing the worksheet, it will also affect the financial statements. The incorrect entry will lead to an inaccurate balance sheet with a misclassified Cash account. The liabilities and equity section will be correct, but the assets section will show an incorrect total. This will result in the total assets being lower than they should be.
In summary, the error in the adjustment for supplies used will affect the supplies and supplies expense accounts, leading to an overstatement of assets and an understatement of expenses. The error of entering the Cash balance in the wrong column will affect the Cash account, leading to a misclassification of assets and an incorrect total in the balance sheet. Both errors, if not discovered, will impact the accuracy of the financial statements.