FA – May 2021 – L1 – SA – Q5 – Double-Entry Accounting Principles

Correct the effect of error in recording a credit sale.

Question

A credit sale of ₦257,000 was recorded in the day book as ₦275,000. The effect is that
A. Assets, liabilities, and equity are understated
B. Assets, liabilities, and equity are overstated
C. Assets and liabilities are overstated; no effect on equity
D. Assets and equity are overstated; no effect on liabilities
E. Equity and liabilities are understated; no effect on assets

Answer

D. Assets and equity are overstated; no effect on liabilities

Explanation:
The error overstates both assets (accounts receivable) and equity (profit), with no impact on liabilities since liabilities are unrelated to sales or profit entries.

Tags: Accounting Errors, Double Entry, Recording Errors
Level: Level 1

Topic: Double-Entry Accounting Principles
Series: MAY 2021

Uploader: Kwame Aikins