Question

Meerabelle Communications Online (MCO) is an advertising consultancy firm. It updates its accounts daily. REQUIRED; Indicate the immediate effect of the following errors on each of the accounting elements described in the column headings below, using the following code: 0 - overstated, understated, NE - no effect Do not copy the question. Copy the table below before answering. Net Profit Total Assets Total Liabilities Owner's Equity Error eg. For Example: Received RM500 cash for advice given to a customer but recorded the transaction as RM50. U NE U (1) MCO bought a state of art printer for RM16,000 on account. It was wrongly recorded as RM61,000. (i) MCO paid its telco bill used for the month, RM770 cash. The debit entry was wrongly recorded as Office equipment (iii) The owner of MCO invested RM100,000 cash as additional capital into the business. However, it was recorded as Loan Payable. (iv) MCO owes RM500 for repairs and maintenance expense made on the last day of the month. No adjustment was done. (v) MCO purchased and used some office supplies for RM333, that were on offer. The owner paid using his personal cash but the cash at bank account was credited.

Answer 1

	Error	Net Profit	Total Assets	Total Liabilities	Owner's Equity
(i)	MCO bought a state of art printer for RM 16,000 on account. It was wrongly recorded as RM 61,000.	NE	O	O	NE
(ii)	MCO paid it's telco bill used for the month, RM 770 cash. The debit entry was wrongly recorded as office equipment.	O	O	NE	O
(iii)	The owner of MCO invested RM 100,000 cash as additional capital into the business. However, it was recorded as Loan payable .	NE	NE	O	U
(iv)	MCO owes RM 500 for repairs and maintenance expense made on the last day of the month . No adjustment was done .	NE	NE	U	O
(v)	MCO purchased and used some office supplies for RM 333, that were on offer. The owner paid using his personal cash but the cash at bank account was credited .	NE	U	NE	U

Explanation :

(1) : Both Office equipment (Asset) and accounts payable (Liability) has been wrongly increased by [ $ 61,000 - $ 16,000 ] = $ 45,000.

(2): Office equipment ( Asset ) has been wrongly increased by $ 770 and Utility expenses ( telco bill) has not been debited by $ 770. Due to understatement of expenses, net income gets overstated and which resulted overstatement of owner's equity.

(3): Loan payable ( Liability) has been wrongly credited by $ 100,000 and Owner's equity has not been recorded at all. Which was overstated the liability and understated owner's equity .

(4): Without adjustment entry repairing charges due but not paid has not been booked in Accrued repairing expenses ( liability ). As a result liability has been wrongly undercasted and owner's equity has been wrongly overstated .

(5): Personal cash has been used to purchase the required office supplies. So, owner's equity must have to be credited here. But instead of that cash at bank account was wrongly been credited. Such mistake resulted understatement of assets as well as understatement of owner's equity .