Question

You have been hired as the new controller for the Ralston Company. Shortly after joining the company in 2021. you discover the following errors related to the 2019 and 2020 financial statements:   

 a. Inventory at December 31, 2019, was understated by $6,200. 

 b. Inventory at December 31, 2020, was overstated by $9,200. 

 c. On December 31, 2020. inventory was purchased for $3,200 (f.o.b. shipping point). The company did not record the purchase until the inventory was paid for early in 2021. At that time, the purchase was recorded by a debit to purchase and a credit to cash.

 The company uses a periodic inventory system. 

Required: 

Prepare a journal entry to correct the errors assuming that the errors discovered in 2021 (after the 2020 financial statements were issued).

Answer 1

Journal Entry

Date	Particulars	Amount Dr.	Amount Cr.
31.03.2021	Stock A/cc Dr.	$6,200
A	To Profit & Loss		$6,200
	(Being Stock understated by $6200 in 2019)
31.03.2021	Profit & Loss A/cc Dr.	$9,200
B	To Stock		$9,200
	(Being Stock overstated by $9,200 in 2020)

C

31.03.20121	Cash A/cc Dr.	$3,200
	To Purchase		$3,200
	( Being entry made payment basis but actual purchase in 2020)

Acutal Entry made in 2020 is

Purchase A/cc Dr. $3,200

To Party name $3200

(Being Acutal Entry made in 2020)