Accounting Errors Quiz

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Questions and Answers

What is the initial debit to the Suspense account for the June 25 transaction error?

`6,300

`2,000 (correct)

`8,100

`4,000

What was the error associated with the June 4 transaction?

Omitting a debit to Cash

Debiting cash for `3,000 (correct)

Debiting equipment for `6,000

Crediting cash instead of debiting it

After correcting the June 7 transaction, what is the new balance of Cash?

`44,930

`46,930 (correct)

`42,930

`50,000

How much less was the trial balance debit total due to the June 22 transaction error?

`6,300 Signup and view all the answers

What adjustment is made to correct the balance of Trade Receivables on June 30?

Debit Trade Receivables and credit Suspense for `2,000 Signup and view all the answers

What is the incorrect balance of office supplies expense as a result of the June 22 transaction?

`8,100 Signup and view all the answers

What action corrects the June 25 error related to trade receivables?

Debit Suspense and credit Trade Receivables for `2,000 Signup and view all the answers

What is the final balance of the Suspense account after all corrective entries are made?

`0 Signup and view all the answers

What is the primary purpose of recording increases and decreases in an account?

To maintain the accuracy of the accounting equation Signup and view all the answers

Which statement correctly describes the purpose of the trade payables account?

It records credit purchases and payments to suppliers Signup and view all the answers

What does a T account typically consist of?

A title, a debit side, and a credit side Signup and view all the answers

What must always be true when using the double-entry system?

Debits must equal credits Signup and view all the answers

Who is credited with articulating the double-entry system of accounting?

Luca Pacioli Signup and view all the answers

Which part of the accounting equation does an increase in trade payables affect?

Liabilities Signup and view all the answers

What happens when cash is received from customers for past invoices in the double-entry system?

Cash increases, and trade receivables decrease Signup and view all the answers

Which of the following statements is NOT true about the double-entry system?

It does not require balancing the accounting equation Signup and view all the answers

What is the primary purpose of a chart of accounts?

To list the account titles and codes of an organization Signup and view all the answers

In terms of structure, what does the code '101' represent in the chart of accounts?

Buildings Signup and view all the answers

What must the balance of the trade receivables account in the general ledger match?

Sum of individual receivable accounts Signup and view all the answers

Which of the following codes corresponds to 'Rent expense' in the chart of accounts?

507 Signup and view all the answers

Which category does 'Salaries expense' fall under in the chart of accounts?

Expenses and Losses Signup and view all the answers

What information does a special ledger typically provide?

Detailed accounts of individual receivable accounts Signup and view all the answers

In the context of the chart of accounts, what does the code '403' indicate?

Interest income Signup and view all the answers

Which of the following items is classified as a liability in the chart of accounts?

Borrowings Signup and view all the answers

What is the total amount for cash according to the provided data?

$46,930 Signup and view all the answers

Which of the following errors would NOT affect the trial balance?

Recording an expense in the wrong account Signup and view all the answers

What should be the first step in correcting an error in accounting records?

Understand the erroneous entry Signup and view all the answers

Which of the following represents a common outcome of improper recording in financial statements?

Misstated expenses Signup and view all the answers

Which of the following entries is likely to cause confusion in expense classification?

Recording rent as telephone expense Signup and view all the answers

What is the total value of the Company’s Trade Receivables?

$7,000 Signup and view all the answers

When correcting an error, what is the second step after understanding the erroneous entry?

Visualizing the correct entry Signup and view all the answers

Which entry would MOST likely require a correcting entry in accounting?

Transposing numbers in expense amounts Signup and view all the answers

What happens to Office Supplies Expense after posting the correcting entry?

It has a debit balance of $1,800. Signup and view all the answers

Which statement regarding the trial balance is not correct?

If a trial balance balances, it means all transactions are recorded. Signup and view all the answers

Which of the following describes a benefit of cloud computing in accounting?

Elimination of the need for in-house technology maintenance. Signup and view all the answers

What are the three major advances in technology that are changing accounting?

Cloud computing, blockchain technology, and machine learning. Signup and view all the answers

What does SaaS stand for in the context of cloud computing?

Software as a service. Signup and view all the answers

Which of the following applications is commonly found in cloud computing?

Enterprise resource planning (ERP). Signup and view all the answers

What is implied when issuing a correcting entry for an error?

An error has occurred in the financial records. Signup and view all the answers

What does a balanced trial balance signify?

The accounts have equal debits and credits. Signup and view all the answers

Study Notes

Accounting Errors and Corrections

Errors in accounting can cause discrepancies in the trial balance, which should ideally balance to confirm accurate financial records.
Common errors include misclassifications, transpositions, and incorrect debits or credits.
Suspense accounts are used to temporarily hold discrepancies until errors are corrected.

Specific Error Examples

June 25: Revenue was debited instead of credited by `6,000, leading to an underreported revenue.
June 4: Equipment was debited 3,000 and cash credited 300, resulting in an initial cash overstatement.
June 22: Office supplies expenses misrecorded as 8,100 instead of 1,800, inflating expenses by `6,300.

Trade Receivables and Suspense Adjustments

Omitting trade receivables debited `2,000 caused an underbalance in trade receivables. Correcting entry adjusted this amount into the suspense account.
Cash was incorrectly credited instead of debited by `2,000, leading to a credit underbalance. A correcting entry reflected this in the suspense account.

Chart of Accounts

A structured list of account titles and codes used for organizing financial transactions.
Assets, revenues, expenses, and liabilities are categorized systematically.
For example, trade receivables have a unique code (104), and main expenses like salaries and electricity are given specific codes as well.

Double-Entry Accounting System

Each transaction affects both debit and credit columns, maintaining the equation: Assets = Liabilities + Equity.
Luca Pacioli formulated the double-entry system, emphasizing equal debits and credits for every transaction.
The T-account structure visually represents transactions with debits on the left and credits on the right.

Trial Balance Interpretation

A balanced trial balance indicates that debits equal credits; however, it cannot guarantee error-free accounting.
Errors that do not affect the trial balance should still be corrected to maintain accurate records.

Correcting Entry Procedures

To address accounting errors: Understand the erroneous entry, visualize the correct entry, and record the necessary corrections.

Technology Impact on Accounting

Cloud computing benefits accounting by reducing the need for in-house technology infrastructure.
Software is accessible over the internet through models such as SaaS, IaaS, and PaaS, allowing shared usage between customers.
Applications related to payroll, tax management, and ERP systems are increasingly adopted in cloud environments to streamline operations.

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Description

Test your knowledge on common accounting errors, including misrecording amounts and transposing digits. This quiz covers various scenarios and account types, helping you to understand how to accurately record and rectify mistakes in financial statements.