A co-op student, working for Insidz Co., recorded the company's transactions for the month. At the end of the month, t
A co-op student, working for Insidz Co., recorded the company's transactions for the month. At the end of the month, the owner of Insidz Co. reviewed the student's work and had some questions about the following transactions:
1. Insidz Co. received $425 cash from a customer on account, which was recorded as a debit to Cash of $425 and a credit to Accounts Receivable of $425.
2. A service provided for cash was posted as a debit to Cash of $2,000 and a credit to Service Revenue of $2,000.
3. A credit of $750 for interest earned was neither recorded nor posted. Th e debit was recorded and posted correctly.
4. Th e debit to record $1,000 of drawings was posted to the Salary Expense account. Th e credit was posted correctly.
5. Services of $325 were provided to a customer on account. Th e co-op student debited Accounts Receivable $325 and credited Unearned Revenue $325.
6. A purchase of supplies for $770 on account was recorded as a credit to Supplies and a credit to Accounts Payable.
7. Insidz Co. received a cash advance of $500 from a customer for work to be done next month. Cash was debited $500 but there was no credit because the co-op student was not sure what to credit.
8. A cash payment of $495 for salaries was recorded as a debit to Salaries Expense and a credit to Salaries Payable.
9. Insidz Co. purchased $2,600 of equipment on account and made a $6,200 debit to Equipment and a $2,600 credit to Accounts Payable.
10. A $650 utility bill for the month was received at the end of the month. It was not recorded because it had not been paid.
(a) Indicate which transactions are correct and which are incorrect.
(b) For each error identified in (a), answer the following:
1. Will the trial balance be in balance?
2. Which account(s) will be incorrectly stated because of the error?
3. For each account you identified in (2) as being incorrect, is the account overstated or understated? By how much?
4. Is the debit column total of the trial balance stated correctly? If not, does correcting the errors increase or decrease the total and by how much?
5. Is the credit column total of the trial balance stated correctly? If not, does correcting the errors increase or decrease the total and by how much?
TAKING IT FURTHER Your best friend thinks it is a waste of time to correct all of the above errors. Your friend reasons that as long as the trial balance is balanced, then there is no need to correct an error. Do you agree or disagree with your friend? Explain, using at least two of the above errors to make your points.