Question

What is the effect on the books if an entry is not recorded? Does the profit go up or down, what happens to assets, or retained earnings?

Answer 1

Solution:

Effect on books for non recording of entry depends on nature of transaction that is not recorded. If revenue transaction is not recorded than profit will go down due to understatement of revenue. If expenses are not recorded than profit will go up due to understatement of expenses. If revenue is not recorded, then will result in understatement of assets and retained earnings in the balance sheet. Further if expenses are not recorded, it will result in overstatement of assets and retained earnings.

Hence effect on books if any entry is not recorded, all depends on nature of transaction that is not recorded.