An entry to record Purchases and related Accounts Payable of $12,200 for merchan
ID: 2401480 • Letter: A
Question
An entry to record Purchases and related Accounts Payable of $12,200 for merchandise purchased on December 23, 2018, was recorded in January 2019. This merchandise was not included in inventory at December 31, 2018. What effect does this error have on reported net income for 2018? What entry should be made to correct for this error, assuming that the books are not closed for 2018? (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)
Explanation / Answer
The error will lead to overstatement of net income for 2018 by $12,200.
The entry to correct the error shall be as below:
Account titles and explanation
Debit
Credit
Purchases
$ 12,200.00
Accounts payable
$ 12,200.00
Account titles and explanation
Debit
Credit
Purchases
$ 12,200.00
Accounts payable
$ 12,200.00