Answer:
a. Interest earned on a note receivable was not recorded - Assets and owners’ equity understated
The Interest earned should have been sent to cash and the income statement. As it was not, Assets (Cash) are understated and so is equity (Income).
b. Depreciation on equipment was not recorded. - Assets understated and owner's equity overstated
Asset was not depreciated as it should have so is overstated. Deprecation was not removed from income so equity is overstated.
c. No adjustment was made for supplies during the month. - Assets and owners’ equity overstated
d. Attorney has earned 1/2 of a retainer fee that was received and recorded last month. No adjustment was recorded for the amount earned - Liabilities overstated and owner's equity understated
The books will still show that they are owe the full amount so liability is overstated. Cash was not put into the income statement so Income (equity) is understated.
e. Property taxes are paid annually. The estimated monthly amount for the taxes was not recorded. - Liabilities understated and owner's equity overstated
Tax liability was supposed to be added to liabilities. As it was not, liabilities are overstated. Tax was to be adjusted for in the Income statement, it was not so income (equity) is more than it should be.
f. Wages are paid every Friday for the 5-day work week. The month ended on Monday and no adjustment was recorded. - Liabilities understated and owner's equity overstated
Liabilities were omitted from being recorded so are overstated. This figure should have been accounted for in the Income as an expense and because it was not, income is larger than it should be.
g. Services provided to customers on the last day of the month were not billed. - Assets and owner's equity understated
The services would have increased cash or receivables which are both assets. As they were not recorded, Assets are undertstated. Net Income (equity) was not increased by the service revenue so is understated.
h. A tenant paid 6-months’ rent in advance when he moved in on the first day of the month. No entry was made on the last day of the month - Liabilities overstated and owner's equity understated .
Prepaid Revenue is a liability that must be recognized when service is provided. First month had been provided yet Prepaid rent was not reduced so Liability is overstated. Amount of Prepaid rent for the first month that should have been recognized as revenue was supposed to go to income (equity) and as it didn't, Equity is understated.
