A compound transaction was recorded as follows: debit Equipment, $5,000; debit Cash, $1500; credit Accounts Payable, $3,500. This error would cause __________.
A. assets to be overstated
B. assets to be understated
C. liabilities to be overstated
D. liabilities to be understated
I'm leaning towards D as my answer
A debit to a liability account was posted to the capital account. This error would cause __________.
A. assets to be overstated
B. liabilities to be overstated
C. capital to be overstated
D. None of the above answers are correct.
possibly D
To determine the effect of this compound transaction on the different financial elements, we need to analyze the accounts involved:
1. Debit Equipment, $5,000: This transaction increases the balance of the Equipment account, which represents an asset. So, assets increase by $5,000.
2. Debit Cash, $1,500: This transaction increases the balance of the Cash account, which is also an asset. So, assets increase by an additional $1,500.
3. Credit Accounts Payable, $3,500: This transaction decreases the balance of the Accounts Payable account, which represents a liability. So, liabilities decrease by $3,500.
From the above analysis, we can see that assets increase by $6,500 ($5,000 + $1,500), while liabilities decrease by $3,500. Therefore, the error in this compound transaction would cause:
B. Assets to be understated
Choosing option D would imply that liabilities are understated, which is incorrect. The decrease in Accounts Payable actually reduces liabilities, resulting in an understatement of assets.