Mastering Correction of

Accounting Errors
American Institute of
Professional Bookkeepers

© American Institute of Professional Bookkeepers, 2010 Correcting Accounting Errors

 Types of Accounting Errors
 Omission An event was never recorded
 Accrual or Deferral No accrual or deferral
Error was recorded (or was
 Classification Error recorded
An amount forwas
the posted
wrong to
amount)
the wrongaddition,
account within
 Arithmetic Error Incorrect
a category (e.g.,
multiplication, the bill
etc.
 Use of an Incorrect For example, revenue
for rent was posted to
Accounting Principle was recognized before it
Insurance Expense)
 Use of an Improper was earned. depreciation
For example,
Estimate The decimal
expense waspoint was
computed
 Transposition Error put
Twoindigits
using the wrong place life
useful
were reversed
An
(foraccount
(for example,
example, was
739credited
1,000 was
 Slide Error when it be
should have been
should
recorded 100)
as 379)
 Posting Error debited (or vice versa)
Correcting Accounting Errors
When Accounting Errors Are
Found
Accounting errors are usually discovered
during:
 The monthly bank reconciliation
 Preparation of the trial balance
 Reviews of end-of-period adjustments
 Routine internal audits
 Year-end audits by external auditors

Correcting Accounting Errors

 The Bank Reconciliation
Cash is the lifeblood of a business
 Even profitable companies can fail
without adequate cash management
 Cash can easily be hidden or moved, making it
an attractive target for theft

Correcting Accounting Errors

 The Bank Reconciliation
One important control on cash is the monthly
bank reconciliation
The bank reconciliation accounts for the
difference between the balance on the bank
statement and the balance in the company
general ledger Cash account(s)
Therefore, to be most effective, the bank
reconciliation should be done by an employee
who neither has custody of nor keeps records
of cash

Correcting Accounting Errors

Cash v. Bank Balance Differences
The Cash account balance and bank
statement balance often differ because:

Items on the company‘s

books are not on the Company checks that
current bank statement have not cleared the bank
 Outstanding checks
 Deposits in transit Company bank deposits
 Book errors not yet credited to its
account

Correcting Accounting Errors

Cash v. Bank Balance Differences
The Cash account balance and bank
statement balance often differ because:
Items on the current bank
Recent bank fees and statement are not yet on
charges the company’s books
 Bank service charges
Customer loans recently  Collections of notes
repaid
Customer(with interest)
checks  Nonsufficient funds
directly
returnedtofor
the bank
insufficient (NSF) checks
funds (“bounced” checks)  Bank errors
 Bank Reconciliation: Example 1
XYZ Corp
Bank Reconciliation
August 20X9

Balance per books, 8/31 x,xxx Balance per bank, 8/31 x,xxx

Reconcile: Reconcile:
Items on the bank statement Items on the company’s
not (yet) recorded by books not on the
the company current bank statement

Corrected book bal., 8/31 x,xxx Corrected bank bal., 8/31 x,xxx
The goal: Make these two balances equal
Correcting Accounting Errors
 Bank Reconciliation: Example 1
XYZ Corp
Bank Reconciliation
August 20X9

Balance per books, 8/31 x,xxx Balance per bank, 8/31 x,xxx

ook balance:
n of note Reconcile: xxx Add to bank balance:Reconcile:
on note xxx Deposits in transit xxx
Items on the bank statement Items on the company’s
not (yet) recorded byDeduct: books not on the
ck the company
xxx current bank statement
Outstanding checks xxx
vice charge xxx

Corrected book bal., 8/31 x,xxx Corrected bank bal., 8/31 x,xxx

Correcting Accounting Errors

Bank Reconciliation: Example 2
As of 11/30, Gym-Bo’s ledger Cash account balance is
$16,150 and its bank statement balance is $33,520
Two checks, totaling $9,810, are outstanding. Bank
A night deposit of $12,150 from the 30th is not on the
current bank statement. Bank
The bank charged Gym-Bo’s account for a check written
by another company for $160. Bank
The bank statement shows collection of a $20,000 note
receivable plus $900 interest. Book
The bank statement shows an NSF check for $1,000 and
a bank service charge for the check of $30. Book

Correcting Accounting Errors

 Bank Reconciliation: Example 2
Gym-Bo
Bank Reconciliation
November 20X9

Balance per books 11/30 16,150 Balance per bank 11/30 33,520

ok balance: Add to bank balance:

of note 20,000 Deposits in transit 12,150
n note 900 Bank error 160

Deduct:
ck 1,000 Outstanding checks 9,810
rvice charge 30
Corrected book bal., 11/30 36,020 Corrected bank bal., 11/30 36,020

Correcting Accounting Errors

 Bank Reconciliation: Example 2
Gym-Bo
Bank Reconciliation
November 20X9

Balance per books 11/30 16,150

ok balance:
Book items to be
of note 20,000
reconciled require journal
n note 900
entries to adjust the current
Cash account balance of
$16,150 to the reconciled
ck 1,000 balance of $36,020
rvice charge 30
Corrected book bal., 11/30 36,020

Correcting Accounting Errors

 Bank Reconciliation: Example 2
Gym-Bo
Bank Reconciliation
November 20X9

Balance per books 11/30 16,150

ok balance: Cash 20,900

of note 20,000 Notes Rec. 20,000
n note 900 Interest Revenue 900

Accts Rec. 1,000

Cash 1,000
ck 1,000
rvice charge 30 Misc. Expense 30
Cash 30
Corrected book bal., 11/30 36,020

Correcting Accounting Errors

Finding Errors in a Trial Balance
To find errors in the unadjusted trial balance,
follow these steps:
1. Check that all account balances have
been correctly transferred to the trial balance
•Scan account balances to see if they are in the
correct column (Dr v. Cr)
•Make sure that every account with a balance was
transferred to the trial balance
•Verify that the balance listed in the debit or credit
column matches the one in the account

Correcting Accounting Errors

 Example
Account Dr Cr
Cash 577
Accounts Prepaid Assets 48
Payable is a Accounts Receivable 699
liability Accounts Payable 702
account Salaries Payable 254
(normal credit R. Smith Capital 566
balance) Sales 4,001
Cost of Goods Sold 1,287
Salaries Expense 1,179
Rent Expense 637
Utilities Expense 344
Interest Expense 200
Tax Expense 552

Correcting Accounting Errors

Finding Errors in a Trial Balance
To find errors in the unadjusted trial balance,
follow these steps:
1. Check that all account balances were
correctly transferred
2. Total the debits and credits. If the totals are
not equal, take these steps:
a. Check for a doubling error

Correcting Accounting Errors

 Example
Account Dr Cr
Cash 577
Prepaid Assets 48
Accounts Receivable 699 Look for this
Accounts Payable 702 amount in the
Salaries Payable 254 trial balance
R. Smith Capital 566
Sales 4,001
Cost of Good Sold 1,287
Salaries Expense 1,179
Rent Expense 637
Utilities Expense 344
Interest Expense 200
Calculate the
difference Tax Expense 552
between the Total 6,225 4,821= 1,404 / 2 = 702
two totals and
divide by 2 Correcting Accounting Errors
 Example
Account Dr Cr
Cash 577
Prepaid Assets 48
Accounts Receivable 699
Accounts Payable 702
Salaries Payable 254
R. Smith Capital 566
Sales 4,001
Cost of Sales 1,287
Salaries Expense 1,179 After the
Rent Expense 637 correction is
Utilities Expense 344 made, the
Interest Expense 200 totals should
Tax Expense 552
be equal
Total 6,225 4,821
5,523 5,523
Correcting Accounting Errors
 Finding Errors in a Trial Balance
To find errors in the unadjusted trial
balance, follow these steps:
1. Check that all account balances were
correctly transferred
2. Total the debits and credits. If the totals
are not equal, take these steps:
a. Check for a doubling error
b. Check for a slide or transposition error

Correcting Accounting Errors

 Example
Account Dr Cr
Cash 577 Look for the
Prepaid Assets 48 same total with
Accounts Receivable 7,990 an extra 0 at
Accounts Payable 702 the end
Salaries Payable 354
R. Smith Capital 566
Sales 4,011
Cost of Goods Sold 1,287
Salaries Expense 1,179
Rent Expense 637
Utilities Expense 344
Calculate the Interest Expense 210
difference Tax Expense 552
between the 12,824 5,633 = 7,191 / 9 = 799
two totals and
divide by 9 Correcting Accounting Errors
 Example
Account Dr Cr
Cash 577
Prepaid Assets 48
Accounts Receivable 799
Accounts Payable 702
Salaries Payable 354
R. Smith Capital 566
Sales 4,011
Cost of Goods Sold 1,287
Salaries Expense 1,179
Rent Expense 637
After correcting
Utilities Expense 344 the error, make
Interest Expense 210 sure the totals
Tax Expense 552 are now equal
12,824 5,633
5,633
Correcting Accounting Errors
 Transposition Errors
A transposition error occurs when two digits
have been reversed. For example:
 123 is recorded as 213
 7,912 is recoded as 9,712
 476 is recorded as 467

Correcting Accounting Errors

 Example
Account Dr Cr
Cash 757
Prepaid Assets 48
Accounts Receivable 699
Accounts Payable 702
Salaries Payable 254
When the
R. Smith Capital 566
difference
Sales 4,011
between the
Cost of Goods Sold 1,287
totals is
Salaries Expense 1,179
divisible by 9,
Rent Expense 637
there may be a
Utilities Expense 344
transposition
Calculate the Interest Expense 210
error
difference Tax Expense 552
between the 5,713 5,533 = 180 / 9 = 20
totals and
divide by 9
Correcting Accounting Errors
 Transposition Errors
To find an amount that has been
transposed:
 Find the difference between total debits and
total credits and add 1 to the first digit
 Example: You find a difference between the totals of
180. The first digit is 1. Add 1 and you get 2.
 Find account balances with that difference
between the first and second digits
 Example: Look for account balances where the
difference between the first and second digits is 2

Correcting Accounting Errors

Transposition Errors: Example
Account Dr Cr To the first digit
Cash 757 of the
Prepaid Assets 48 difference add
Accounts Receivable 699 1
Accounts Payable 702 1+1=2
Salaries Payable 254
Now look for a
R. Smith Capital 566
difference of this
Sales 4,011
Cost of Goods Sold 1,287
amount between
Salaries Expense 1,179 the first and
Rent Expense 637 second digits
Utilities Expense 344
Interest Expense 210
Tax Expense 552
5,713 5,533 = 180

Correcting Accounting Errors

Transposition Errors: Example
Account Dr Cr
Cash 577
Prepaid Assets 48
Accounts Receivable 699
Accounts Payable 702
Salaries Payable 254
R. Smith Capital 566
Sales 4,011
Cost of Goods Sold 1,287
Salaries Expense 1,179
Rent Expense 637
After the error
Utilities Expense 344 is corrected,
Interest Expense 210 make sure the
Tax Expense 552 totals balance
5,713 5,533
5,533
Correcting Accounting Errors
Finding Errors in a Trial Balance
To find errors in the unadjusted trial balance,
follow these steps:
1.Check that all account balances have been
correctly transferred to the trial balance
2.Total debits and credits—if not equal, look
for a doubling, slide or transposition error.
3. Examine journal entries and postings
a. Verify that JEs were posted correctly to the
ledger accounts
b. Review JEs for obvious errors—you may
need to examine source documents
Correcting Accounting Errors
 Accrual Errors
Recall from Mastering Adjusting Entries that an
accrual is an expense incurred or revenue
earned before cash flows
At the end of the period, an adjusting entry
is recorded to accrue revenues (and
receivables)—and expenses (and payables)
The adjusting entry to The adjusting entry to
accrue revenue is: accrue expenses is:
____ Receivable ____ Expense
____ Revenue ____ Payable

Correcting Accounting Errors

 Accrual Errors
Accrual errors fall into three categories:
1. Failure to record the adjusting entry
2. Accruing too much
3. Accruing too little
If the error is found before the books are
closed for the year, it can be corrected
with a simple journal entry

Correcting Accounting Errors

 Accrued Revenue Errors
Review: The adjusting entry to accrue revenue is:
____ Receivable xxx
____ Revenue xxx
Error:
Failure to record the adjusting entry
Correction:
Record the adjusting entry
____ Receivable xxx
____ Revenue xxx

Correcting Accounting Errors

 Accrued Revenue Errors
Review: The adjusting entry to accrue revenue is:
____ Receivable xxx
____ Revenue xxx
Error:
Too much revenue was accrued
Correction:
Record an adjusting entry with the accounts
reversed. The amount must reduce the revenue
account to the correct balance.
____ Revenue xxx
____ Receivable xxx

Correcting Accounting Errors

 Accrued Revenue Errors
Review: The adjusting entry to accrue revenue is:
____ Receivable xxx
____ Revenue xxx
Error:
Too little revenue was accrued
Correction:
Record an adjusting entry that increases the
revenue account to the correct balance

____ Receivable xxx

____ Revenue xxx

Correcting Accounting Errors

 Accrued Revenue Errors
Example
AdviceCo is doing a $30,000
consulting job and will be paid The year-end AJE should be:
upon completion. At year end, Accts. Receivable 9,000
30% of the job has been Consulting Rev. 9,000
completed.
If no AJE was recorded, the
correction is simply to record it:
Correct the error if AdviceCo:
Accts. Receivable 9,000
(a) failed to record an AJE
Consulting Rev. 9,000

Correcting Accounting Errors

 Accrued Revenue Errors
Example
AdviceCo is doing a $30,000
consulting job and will be paid The year-end AJE should be:
upon completion. At year end, Accts. Receivable 9,000
30% of the job has been Consulting Rev. 9,000
completed.
But AdviceCo recorded:
Accts. Receivable 12,000
Correct the error if AdviceCo: Consulting Rev. 12,000
(a) failed to record an AJE
The correcting journal entry is:
(b) accrued 40% (instead of
Consulting Rev. 3,000
30%) of $30,000
Accts. Receivable 3,000

Correcting Accounting Errors

 Accrued Revenue Errors
Example
AdviceCo is doing a $30,000
consulting job and will be paid The year-end AJE should be:
upon completion. At year end, Accts. Receivable 9,000
30% of the job has been Consulting Rev. 9,000
completed.
But AdviceCo recorded:
Accts. Receivable 6,000
Correct the error if AdviceCo: Consulting Rev. 6,000
(a) failed to record an AJE
The correcting journal entry is:
(b) accrued 40% (instead of Accts. Receivable 3,000
30%) of $30,000 3,000
Consulting Rev.
(c) accrued 20% (instead of
30%) $30,000
Correcting Accounting Errors
 Accrued Expense Errors
Review: The adjusting entry to accrue an expense is:
____ Expense xxx
____ Payable xxx
Error:
Failure to record the adjusting entry
Correction:
Record the adjusting entry

____ Expense xxx

____ Payable xxx

Correcting Accounting Errors

 Accrued Expense Errors
Review: The adjusting entry to accrue an expense is:
____ Expense xxx
____ Payable xxx
Error:
Too much expense was accrued
Correction:
Record an adjusting entry that reduces the
expense account to the correct balance
____ Payable xxx
____ Expense xxx

Correcting Accounting Errors

 Accrued Expense Errors
Review: The adjusting entry to accrue an expense is:
____ Expense xxx
____ Payable xxx
Error:
Too little expense was accrued
Correction:
Record an adjusting entry that increases the
expense account to the correct balance
____ Expense xxx
____ Payable xxx

Correcting Accounting Errors

 Accrued Expense Errors
Example
ClarkCo takes a $50,000 loan
at an annual interest rate of The year-end AJE should be:
12%. Interest is paid twice a Interest Exp. 2,500
year on 2/1 and 8/1. The last Interest Payable 2,500
payment was on 8/1 this year.
If ClarkCo failed to record an
AJE, the correction is simply to
Correct the error if ClarkCo: record it:
(a) failed to record an AJE Interest Exp. 2,500
Interest Payable 2,500

Correcting Accounting Errors

 Accrued Expense Errors
Example
ClarkCo takes a $50,000 loan
at an annual interest rate of The year-end AJE should be:
12%. Interest is paid twice a Interest Exp. 2,500
year on 2/1 and 8/1. The last Interest Payable 2,500
payment was on 8/1 this year.
But ClarkCo recorded the
following entry:
Correct the error if ClarkCo: Interest Exp. 3,000
(a) failed to record an AJE Interest Payable 3,000
(b) accrued 6 (instead of 5) Therefore, the correcting entry is:
months’ interest
Interest Payable 500
Interest Exp. 500

Correcting Accounting Errors

 Accrued Expense Errors
Example
ClarkCo takes a $50,000 loan
at an annual interest rate of The year-end AJE should be:
12%. Interest is paid twice a Interest Exp. 2,500
year on 2/1 and 8/1. The last Interest Payable 2,500
payment was on 8/1 this year.
But ClarkCo recorded the
following entry:
Correct the error if ClarkCo: Interest Exp. 1,500
(a) failed to record an AJE Interest Payable 1,500
(b) accrued 6 (instead of 5) Therefore, the correcting entry
months’ interest is:
Interest Exp. 1,000
(c) accrued 3 (instead of 5) Interest Payable 1,000
months’ interest
Correcting Accounting Errors
 Deferred Expense Errors
Recall from Mastering Adjusting Entries that
a deferred expense is a prepaid expense.
The original entry may have an included an
asset account—or an expense account:
Prepaid Exp. xxx Expense xxx
Cash Cash xxx

Thus,
xxxthe adjusting entry was either:

Expense xxx Prepaid Exp. xxx

Prepaid Exp. xxx Expense xxx

Correcting Accounting Errors

 Deferred Expense Errors
Review: If the prepayment was recorded as an
asset (prepaid expense), the adjusting entry is:
Expense xxx
Prepaid Exp. xxx
Error:
Failure to record the adjusting entry
Correction:
Record the adjusting entry
Expense xxx
Prepaid Exp. xxx

Correcting Accounting Errors

 Deferred Expense Errors
Review: If the prepayment was recorded as an
asset (prepaid expense), the adjusting entry is:
Expense xxx
Prepaid Exp. xxx
Error:
Too much expense was recognized
Correction:
Record an adjusting entry with the accounts
reversed. The amount must reduce the expense
account to the correct balance.
Prepaid Exp. xxx
Expense xxx
Correcting Accounting Errors
 Deferred Expense Errors
Review: If the prepayment was recorded as an
asset (prepaid expense), the adjusting entry is:
Expense xxx
Prepaid Exp. xxx
Error:
Too little expense was recognized
Correction:
Record an adjusting entry that increases the
expense account to the correct balance
Expense xxx
Prepaid Exp. xxx

Correcting Accounting Errors

 Deferred Expense Errors
Example
On May 1, TruckCo prepays
$2,400 for 2 years’ insurance The year-end AJE should be:
and debits Prepaid Insurance Expense 800
Insurance. Prepaid Insurance 800

Correct the error if TruckCo: If no AJE was recorded, the

correction is simply to record it:
(a) failed to record an AJE.
Insurance Expense 800
Prepaid Insurance 800

Correcting Accounting Errors

 Deferred Expense Errors
Example
On May 1, TruckCo prepays
$2,400 for 2 years’ insurance
and debits Prepaid
Insurance.
Correct the error if TruckCo:
(a) failed to record an AJE
(b) recognized $500 of
insurance expense
The year-end AJE should be:
Insurance Expense 800
Prepaid Insurance 800
But TruckCo recorded:
Insurance Expense 500
Prepaid Insurance 500
The correcting journal entry is:
Insurance Expense 300
Prepaid Insurance 300
Correcting Accounting Errors
 Deferred Expense Errors
Example
On May 1, TruckCo prepays
$2,400 for 2 years’
insurance and debits
Prepaid Insurance.
Correct the error if TruckCo:
(a) failed to record an AJE
(b) recognized $500 of
insurance expense
(c) recognized $1,000
insurance expense
The year-end AJE should be:
Insurance Expense 800
Prepaid Insurance 800
But TruckCo recorded:
Insurance Expense 1,000
Prepaid Insurance 1,000
The correcting journal entry is:
Prepaid Insurance 200
Insurance Expense 200
Correcting Accounting Errors
 Deferred Expense Errors
Review: If the prepayment was recorded as an
expense, the adjusting entry is:
Prepaid Exp. xxx
Expense xxx
Error:
Failure to record the AJE
Correction:
Record the AJE:
Prepaid Exp. xxx
Expense xxx

Correcting Accounting Errors

 Deferred Expense Errors
Review: If the prepayment was recorded as an
expense, the adjusting entry is:
Prepaid Exp. xxx
Expense xxx
Error:
Too much expense recognized (too little deferred)
Correction:
Record an adjusting entry that reduces the
expense account to the correct balance
Prepaid Exp. xxx
Expense xxx
Correcting Accounting Errors
 Deferred Expense Errors
Review: If the prepayment was recorded as an
expense, the adjusting entry is:
Prepaid Exp. xxx
Expense xxx
Error:
Too little expense recognized (too much deferred)
Correction:
Record an adjusting entry with the accounts
reversed. The amount must increase the
expense account to the correct balance.
Expense xxx
Prepaid Exp. xxx
Correcting Accounting Errors
 Deferred Expense Errors
Example
Xylis Entertainment prepaid
$3,600 for 6 months’ rent on The year-end AJE should be:
November 1 and debited Prepaid Rent 2,400
Rent Expense. Rent Expense 2,400
Correct the error if Xylis:
If Xylis failed to record an AJE,
(a) failed to record an AJE the correction is simply to record
it:

Prepaid Rent 2,400

Rent Expense 2,400

Correcting Accounting Errors

 Deferred Expense Errors
Example
Xylis Entertainment prepaid
$3,600 for 6 months’ rent on The year-end AJE should be:
November 1 and debited Prepaid Rent 2,400
Rent Expense. Rent Expense 2,400
Correct the error if Xylis:
But Xylis recorded:
(a) failed to record an AJE
Prepaid Rent 3,000
(b) deferred $3,000 of rent Rent Expense 3,000
expense
The correcting journal entry is:
Rent Expense 600
Prepaid Rent 600

Correcting Accounting Errors

 Deferred Expense Errors
Example
Xylis Entertainment prepaid
$3,600 for 6 months’ rent on The year-end AJE should be:
November 1 and debited Prepaid Rent 2,400
Rent Expense. Rent Expense 2,400
Correct the error if Xylis:
But Xylis recorded:
(a) failed to record an AJE
Prepaid Rent 1,800
(b) deferred $3,000 of rent Rent Expense 1,800
expense
(c) deferred $1,800 of rent The correcting journal entry is:
expense
Prepaid Rent 600
Rent Expense 600

Correcting Accounting Errors

 Deferred Revenue Errors
Review: If the advance payment was recorded as a
liability (unearned revenue), the adjusting entry is:

Unearned Revenue xxx

Revenue xxx
Error:
Failure to record the AJE
Correction:
Record the AJE
Unearned Revenue xxx
Revenue xxx

Correcting Accounting Errors

 Deferred Revenue Errors
Review: If the advance payment was recorded as a
liability (unearned revenue), the adjusting entry is:

Unearned Revenue xxx

Revenue xxx
Error:
Too much revenue recognized
Correction:
Record an adjusting entry with the accounts
reversed. The amount must reduce the revenue
account to the correct balance.
Revenue xxx
Unearned Revenue xxx
Correcting Accounting Errors
 Deferred Revenue Errors
Review: If the advance payment was recorded as a
liability (unearned revenue), the adjusting entry is:

Unearned Revenue xxx

Revenue xxx
Error:
Too little revenue recognized
Correction:
Record an adjusting entry that increases the
revenue account to the correct balance
Unearned Revenue xxx
Revenue xxx

Correcting Accounting Errors

 Deferred Revenue Errors
Example
On Sept. 1, AlarmCo received
$480 in advance for 24 The year-end AJE should be:
months’ alarm monitoring and Unearned Revenue 80
credited Unearned Revenue. Revenue 80
Correct the error if AlarmCo:
If AlarmCo failed to record an
(a) failed to record an AJE AJE, the correction is simply to
record it:
Unearned Revenue 80
Revenue 80

Correcting Accounting Errors

 Deferred Revenue Errors
Example
On Sept. 1, AlarmCo received
$480 in advance for 24 The year-end AJE should be:
months’ alarm monitoring and Unearned Revenue 80
credited Unearned Revenue. Revenue 80
Correct the error if AlarmCo:
But AlarmCo recorded:
(a) failed to record an AJE
Unearned Revenue 60
(b) recognized $60 of revenue
Revenue 60

The correcting journal entry is:

Unearned Revenue 20
Revenue 20

Correcting Accounting Errors

 Deferred Revenue Errors
Example
On Sept. 1, AlarmCo received
$480 in advance for 24 The year-end AJE should be:
months’ alarm monitoring and Unearned Revenue 80
credited Unearned Revenue. Revenue 80
Correct the error if AlarmCo:
But AlarmCo recorded:
(a) failed to record an AJE
Unearned Revenue 120
(b) recognized $60 of revenue
Revenue 120
(c) recognized $120 of revenue
The correcting journal entry is:
Revenue 40
Unearned Revenue 40

Correcting Accounting Errors

 Deferred Revenue Errors
Review: If the advance payment was recorded as
revenue, the adjusting entry is:

Revenue xxx
Unearned Revenue xxx
Error:
Failure to record the AJE
Correction:
Record the AJE
Revenue xxx
Unearned Revenue xxx

Correcting Accounting Errors

 Deferred Revenue Errors
Review: If the advance payment was recorded as
revenue, the adjusting entry is:

Revenue xxx
Unearned Revenue xxx
Error:
Too much revenue recognized
Correction:
Record an adjusting entry that reduces the
revenue account to the correct balance
Revenue xxx
Unearned Revenue xxx
Correcting Accounting Errors
 Deferred Revenue Errors
Review: If the advance payment was recorded as
revenue, the adjusting entry is:

Revenue xxx
Unearned Revenue xxx
Error:
Too little revenue recognized (too much deferred)
Correction:
Record an adjusting entry with the accounts
reversed. The amount must increase the
revenue account to the correct balance.
Unearned Revenue xxx
Revenue xxx
Correcting Accounting Errors
 Deferred Revenue Errors
Example
On Sept. 1, LeaseCo
received $6,000 in advance The year-end AJE should be:
for a 12-month equipment Revenue 4,000
rental and credited Unearned 4,000
Revenue. Revenue
Correct the error if LeaseCo:
If LeaseCo failed to record an
(a) failed to record an AJE AJE, the correction is simply to
record it:
Revenue 4,000
Unearned 4,000
Revenue

Correcting Accounting Errors

 Deferred Revenue Errors
Example
On Sept. 1, LeaseCo
received $6,000 in advance The year-end AJE should be:
for a 12-month equipment Revenue 4,000
rental and credited Unearned 4,000
Revenue. Revenue
Correct the error if LeaseCo:
But LeaseCo recorded:
(a) failed to record an AJE
Revenue 4,500
(b) deferred $4,500 of revenue
Unearned 4,500
Revenue
The correcting journal entry is:
Unearned Revenue 500
Revenue 500

Correcting Accounting Errors

 Deferred Revenue Errors
Example
On Sept. 1, LeaseCo
received $6,000 in advance The year-end AJE should be:
for a 12-month equipment Revenue 4,000
rental and credited Unearned 4,000
Revenue. Revenue
Correct the error if LeaseCo:
But LeaseCo recorded:
(a) failed to record an AJE
Revenue 1,500
(b) deferred $3,600 of revenue
Unearned Rev. 1,500
(c) deferred $1,800 of revenue
The correcting journal entry is:
Revenue 2,500
Unearned Rev. 2,500

Correcting Accounting Errors