Professional Documents
Culture Documents
Accounting Errors
American Institute of
Professional Bookkeepers
Bank Reconciliation:
Example
XYZ Corp 1
Bank Reconciliation
August 20X9
Balance per books, 8/31 x,xxx
Reconcile:
Items on the bank statement
not (yet) recorded by
the company
Corrected book bal., 8/31x,xxx
x,xxx
Reconcile:
Items on the companys
books not on the
current bank statement
Corrected bank bal., 8/31 x,xxx
Bank Reconciliation:
Example
XYZ Corp 1
Bank Reconciliation
August 20X9
Balance per books, 8/31 x,xxx
x,xxx
Add to bank
balance:
Reconcile:
Deposits
inthe
transit
Items on
companysxxx
books not on the
Deduct:
current bank
statementxxx
Outstanding
checks
Corrected bank bal., 8/31 x,xxx
Bank Reconciliation:
Example 2
As of 11/30, Gym-Bos ledger Cash account balance
is $16,150 and its bank statement balance is
$33,520
Bank
Two checks, totaling $9,810, are outstanding.
A night deposit of $12,150
from the 30 th is not on
Bank
the current bank statement.
The bank charged Gym-Bos account
Bank for a check
written by another company for $160.
The bank statement shows collection
of a $20,000
Book
note receivable plus $900 interest.
The bank statement shows an NSF check for $1,000
Book
and a bank service charge for the check of $30.
Bank Reconciliation:
Example
2
Gym-Bo
Bank Reconciliation
November 20X9
20,000
900
Deduct:
1,000 Outstanding checks
30
12,150
160
9,810
Bank Reconciliation:
Example
2
Gym-Bo
Bank Reconciliation
November 20X9
Balance per books 11/3016,150
Add to book balance:
Collection of note
Interest on note
Deduct:
NSF check
Bank service charge
20,000
900
1,000
30
Book items to be
reconciled require
journal entries to adjust
the current Cash
account balance of
$16,150 to the
reconciled balance of
$36,020
Bank Reconciliation:
Example
2
Gym-Bo
Bank Reconciliation
November 20X9
Balance per books 11/3016,150
Add to book balance:
Collection of note
Interest on note
Deduct:
NSF check
Bank service charge
20,000
900
1,000
30
Cash
20,900
Notes Rec.
20,000
Interest Revenue
900
Accts Rec.
1,000
Cash
1,000
Misc. Expense
Cash
30
30
Example
Accounts
Payable is a
liability
account
(normal
credit
balance)
Account
Dr
Cr
Cash
577
Prepaid Assets
48
Accounts Receivable
699
Accounts Payable
702
Salaries Payable
254
R. Smith Capital
566
Sales
4,001
Cost of Goods Sold
1,287
Salaries Expense
1,179
Rent Expense
637
Utilities Expense
344
Interest Expense
200
Tax Expense
552
Example
Calculate
the
difference
between the
two totals
Account
Cash
Prepaid Assets
Accounts Receivable
Accounts Payable
Salaries Payable
R. Smith Capital
Sales
Cost of Good Sold
Salaries Expense
Rent Expense
Utilities Expense
Interest Expense
Tax Expense
Total
Dr
577
48
699
702
Cr
4,001
1,287
1,179
637
344
200
552
6,225 4,821= 1,404 / 2 =
702
Correcting Accounting Errors
Example
Account
Cash
Prepaid Assets
Accounts Receivable
Accounts Payable
Salaries Payable
R. Smith Capital
Sales
Cost of Sales
Salaries Expense
Rent Expense
Utilities Expense
Interest Expense
Tax Expense
Total
Dr
577
48
699
702
Cr
254
566
4,001
1,287
1,179
637
344
200
552
6,225 4,821
5,523 5,523
After the
correction
is made,
the totals
should be
equal
Example
Calculate
the
difference
between the
two totals
Account
Cash
Prepaid Assets
Accounts Receivable
Accounts Payable
Salaries Payable
R. Smith Capital
Sales
Cost of Goods Sold
Salaries Expense
Rent Expense
Utilities Expense
Interest Expense
Tax Expense
Dr
Cr
Look for the
577
same total
48
7,990
with an extra
702 0 at the end
354
566
4,011
1,287
1,179
637
344
210
552
12,824 5,633= 7,191 / 9 =
799
Correcting Accounting Errors
Example
Account
Dr
Cr
Cash
577
Prepaid Assets
48
Accounts Receivable
799
Accounts Payable
702
Salaries Payable
354
R. Smith Capital
566
Sales
4,011
Cost of Goods Sold
1,287
Salaries Expense
1,179
After
Rent Expense
637
correcting
Utilities Expense
344
the error,
Interest Expense
210
make sure
Tax Expense
552
12,824 5,633 the totals are
now equal
5,633
Correcting Accounting Errors
Transposition Errors
A transposition error occurs when two
digits have been reversed. For
example:
123 is recorded as 213
7,912 is recoded as 9,712
476 is recorded as 467
Example
Account
Dr
Cr
Cash
757
Prepaid Assets
48
Accounts Receivable
699
Accounts Payable
702
Salaries Payable
254
R. Smith Capital
566
Sales
4,011
Cost of Goods Sold
1,287
Salaries Expense
1,179
Rent Expense
637
Utilities Expense
344
Interest Expense
210
Calculate the
Tax Expense
552
difference
5,713 5,533=
between the
totals and
divide by 9
When the
difference
between the
totals is
divisible by
9, there may
be a
transposition
error
180 / 9 = 20
Transposition Errors
To find an amount that has been
transposed:
Find the difference between total debits and
total credits and add 1 to the first digit
Example: You find a difference between the totals
of 180. The first digit is 1. Add 1 and you get 2.
Transposition Errors:
Example
Account
Dr
Cr To the first
Cash
757
digit of the
Prepaid Assets
48
difference
Accounts Receivable
699
add 1
1+1=2
Accounts Payable
702
Salaries Payable
254
Now look for a
R. Smith Capital
566
difference of
Sales
4,011
this amount
Cost of Goods Sold
1,287
between the
Salaries Expense
1,179
first and
Rent Expense
637
second digits
Utilities Expense
344
Interest Expense
210
Tax Expense
552
5,713 5,533= 180
Correcting Accounting Errors
Transposition Errors:
Example
Account
Dr
Cr
Cash
577
Prepaid Assets
48
Accounts Receivable
699
Accounts Payable
702
Salaries Payable
254
R. Smith Capital
566
Sales
4,011
Cost of Goods Sold
1,287
Salaries Expense
1,179
After the
Rent Expense
637
error is
Utilities Expense
344
corrected,
Interest Expense
210
make sure
Tax Expense
552
5,713 5,533 the totals
balance
5,533
Correcting Accounting Errors
Accrual Errors
Recall from Mastering Adjusting Entries
that an accrual is an expense incurred or
revenue earned before cash flows
At the end of the period, an adjusting
entry is recorded to accrue revenues
(and receivables)and expenses (and
payables)
The adjusting entry to
The adjusting entry to
accrue revenue is:
____ Receivable
____ Revenue
Accrual Errors
Accrual errors fall into three
categories:
1. Failure to record the adjusting entry
2. Accruing too much
3. Accruing too little
xxx
Error:
Failure to record the adjusting
entry
Correction:
Record the adjusting entry
____ Receivable
____ Revenue
xxx
xxx
xxx
Error:
Too much revenue was accrued
Correction:
Record an adjusting entry with the
accounts reversed. The amount must
reduce the revenue account to the correct
balance.____ Revenue
xxx
____ Receivable
xxx
xxx
Error:
Too little revenue was accrued
Correction:
Record an adjusting entry that increases
the revenue account to the correct balance
____ Receivable
____ Revenue
xxx
xxx
xxx
Error:
Failure to record the adjusting
entry
Correction:
Record the adjusting entry
____ Expense
____ Payable
xxx
xxx
xxx
Error:
Too much expense was accrued
Correction:
Record an adjusting entry that reduces
the expense account to the correct
balance
____ Payable
____ Expense
xxx
xxx
xxx
Error:
Too little expense was accrued
Correction:
Record an adjusting entry that increases
the expense account to the correct
balance
____ Expense
____ Payable
xxx
xxx
500
Error:
Failure to record the adjusting
entry
Correction:
Record the adjusting entry
Expense
xxx
Prepaid Exp.
xxx
Error:
Too much expense was
recognized
Correction:
Record an adjusting entry with the
accounts reversed. The amount must
reduce the expense account to the correct
xxx
balance. Prepaid Exp.
Expense
xxx
Error:
Too little expense was
recognized
Correction:
Record an adjusting entry that increases
the expense account to the correct
balance Expense
xxx
Prepaid Exp.
xxx
Correcting Accounting Errors
800
Insurance
1,000
Prepaid
1,000
Expense
Insurance
The correcting journal entry
is:
200
Prepaid
200
Insurance
Insurance
Expense
Correcting Accounting Errors
xxx
xxx
Error:
Failure to record the AJE
Correction:
Record the AJE:
Prepaid Exp.
Expense
xxx
xxx
xxx
xxx
Error:
Too much expense recognized (too little
deferred)
Correction:
Record an adjusting entry that reduces the
expense account to the correct balance
Prepaid Exp.
Expense
xxx
xxx
Correcting Accounting Errors
xxx
xxx
Error:
Too little expense recognized (too much
deferred)
Correction:
Record an adjusting entry with the
accounts reversed. The amount must
increase the expense account to the
Expense
xxx
correct balance.
Prepaid Exp.
xxx
2,400
2,400
3,000
3,000
Error:
Failure to record the AJE
Correction:
Record the AJE
Unearned Revenue xxx
Revenue
xxx
Error:
Too much revenue recognized
Correction:
Record an adjusting entry with the
accounts reversed. The amount must
reduce the revenue account to the correct
xxx
balance. Revenue
Unearned Revenue xxx
Error:
Too little revenue recognized
Correction:
Record an adjusting entry that increases
the revenue account to the correct
balance Unearned Revenue xxx
Revenue
xxx
Correcting Accounting Errors
80
80
80
80
80
80
60
60
80
80
120
120
xxx
Error:
Failure to record the AJE
Correction:
Record the AJE
Revenue
xxx
Unearned Revenue
xxx
xxx
Error:
Too much revenue recognized
Correction:
Record an adjusting entry that reduces the
revenue account to the correct balance
Revenue
xxx
Unearned Revenue
xxx
Correcting Accounting Errors
xxx
Error:
Too little revenue recognized (too much
deferred)
Correction:
Record an adjusting entry with the
accounts reversed. The amount must
increase the revenue account to the
Unearned Revenuexxx
correct balance.
Revenue
xxx
4,000
4,00
0