Question

How would the following transactions be adjusted of financial statements? (What is being debited/credited?).

• $14,500 was erroneously included in rent expense that was for a deposit on a new Buffalo office. The amount of deferred revenue is overstated by 40% . $100,000 was classified as salaries and wages (payroll expense) that should have been classified as a loan receivable to the Company’s CEO

Answer 1

1)$14,500 was erroneously included in rent expense that was for a deposit on a new Buffalo office: This will reduce expense and increase the asset. In this case, Security Deposits or advance for Rent accounts will be debited and Rent account will be credited to correct the errors.

2) The amount of deferred revenue is overstated by 40% . Deferred Revenue is a Liability and since its overstated the liability portion is overstated. We need to dedit Deferred Revenue and credit the corresponding cash or the account debited when the initial incorrect entry was made.

3) $100,000 was classified as salaries and wages (payroll expense) that should have been classified as a loan receivable to the Company’s CEO.

In this case, it will reduce expenses and increase the asset. Thus Loan receivable is debited and salaries and wages expense is credited to correct this error.