Accounting Correction Error
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Accounting Error Correction Examples
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Accounting Error Correction Entries
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Accounting Error Correction Letter
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Chapter 20 Accounting Changes And Error Corrections
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error is discovered in the accounting records, it should be corrected immediately to prevent the processing of wrong data which results to unreliable financial statements. This is done through a correcting entry. A correcting entry is a journal entry whose purpose is to http://www.accountingverse.com/accounting-basics/correcting-entries.html rectify the effect of an incorrect entry previously made. To illustrate how to prepare correcting entries, here are some examples. On December 5, 2014, Gray Electronic Repair Services paid $370 registration and licensing fees for the business. The correct entry is: Dec 5 Taxes and Licenses 370.00 Cash 370.00 Suppose the bookkeeper, for whatever reason, debited Transportation Expense instead of Taxes and Licenses. The entry made was: Dec 5 Transportation error correction Expense 370.00 Cash 370.00 Upon analysis, the Transportation Expense is overstated (higher than in should be) because the bookkeeper recorded transportation expense but it was not really a transportation expense. Also, Taxes and Licenses is understated (lower than it should be). The amount should have been recorded but was not recorded under this account. To correct these errors, we should make an entry to offset the effects. Transportation Expense is accounting error correction overstated therefore we should decrease it; Taxes and Licenses is understated therefore we should increase it. The Cash account was credited in the entry made. Was the entry made to Cash correct? Look at the correct entry. Is it proper to have Cash credited? Yes. Therefore, we have no problem with the Cash account. Now, to increase Taxes and Licenses, we credit it. To decrease Transportation Expense, we debit it. Remember that to increase/record an expense, we debit it; to decrease an expense, we credit it. The correcting entry would then be: Dec 31 Taxes and Licenses 370.00 Transportation Expense 370.00 Note: The correcting entry is dated when the error is discovered. In this case, we assumed that it was discovered and corrected on December 31. If an explanation or annotation is required, it would be something like: "To correct error made on taxes and licenses" or "To record correction of error on entry made for taxes and licenses." After making this entry, Transportation Expense will zero-out ($370 debit and $370 credit) and Taxes and Licenses will now have a balance of $370.00, thus making our records correct. Another Example Let us assume the bookkeeper made another error. On December 17, the company collected a receivable from a customer, $1,650.00. Suppose the bookkeeper recorded it at $1,
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