This document contains examples of correcting entries for accounting errors. The first error was a collection that was incorrectly recorded as a debit to cash and credit to service revenue, when it should have been a debit to accounts receivable and credit to service revenue. The second error was a purchase of supplies that was incorrectly recorded as a debit to supplies and credit to accounts payable for the wrong amount. The document provides the incorrect entry, correct entry, and correcting entry for each error.

1. 1

2. Principles Of Accounting (1)
Revision
From Chapter 1 to Chapter 4
Mohamed Mahmoud
mmahmoud@eelu.edu.eg
Tel: (+202) 33318449
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3. Correcting Entries
The following errors were discovered after the transactions had been
journalized and posted. Prepare the correcting entries.
1. A collection on account from a customer was recorded as a debit to
Cash and a credit to Service Revenue for $780.
Incorrect Cash 780
entry Service revenue 780
Cash 780
Correct entry
Accounts receivable 780
Correcting Service revenue 780
entry Accounts receivable 780
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4. Correcting Entries (continued)
The following errors were discovered after the transactions had been
journalized and posted. Prepare the correcting entries.
2. The purchase of supplies on account for $1,570 was recorded as a debit
to Store Supplies and a credit to Accounts Payable for $1,750.
Incorrect Store Supplies 1,750
entry Accounts payable 1,750
Store Supplies 1,570
Correct entry
Accounts payable 1,570
Correcting Accounts payable 180
entry Store Supplies 180
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5. Exercise 1
M. El-Beheery, CPA, was asked by Omar to review the accounting records and prepare the
financial statements for his upholstering shop. Elbeheery reviewed the records and found three
errors.
1. Cash paid on accounts payable for $930 was recorded as a debit to Accounts Payable $390
and a credit to Cash $390.
2. The purchase of supplies on account for $500 was debited to Equipment $500 and credited to
Accounts Payable $500.
3. Omar withdrew $1,200 of cash and the bookkeeper debited Accounts Receivable for $120 and
credited Cash $120.
Instructions:
Prepare an analysis of each error showing the
(a) incorrect entry.
(b) correct entry.
(c) correcting entry.
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6. Answer
1. (a) Incorrect Entry:
Accounts Payable.............................................................. 390
Cash ......................................................................... 390
(b) Correct Entry:
Accounts Payable.............................................................. 930
Cash ......................................................................... 930
(c) Correcting Entry:
Accounts Payable.............................................................. 540
Cash ......................................................................... 540
2. (a) Incorrect Entry:
Equipment ......................................................................... 500
Accounts Payable..................................................... 500
(b) Correct Entry:
Supplies............................................................................. 500
Accounts Payable..................................................... 500
(c) Correcting Entry:
Supplies............................................................................. 500
Equipment ................................................................ 500
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7. Answer
3. (a) Incorrect Entry:
Accounts Receivable......................................................... 120
Cash ......................................................................... 120
(b) Correct Entry:
Omar, Drawing ................................................................ 1,200
Cash ......................................................................... 1,200
(c) Correcting Entry:
Omar, Drawing ................................................................ 1,200
Accounts Receivable ................................................ 120
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8. Exercise 2
Barone’s Repair Shop was started on May 1 by Nancy. Prepare a tabular analysis
of the following transactions for the month of May:
1) Invested $10,000 cash to start the repair shop.
2) Purchased equipment for $5,000 cash.
3) Paid $400 cash for May office rent.
4) Received $5,100 from customers for repair service.
5) Withdrew $1,000 cash for personal use.
6) Paid part-time employee salaries of $2,000.
7) Incurred $250 of advertising costs, on account.
8) Provided $750 of repair services on account.
9) Collected $120 cash for services previously billed.
Instructions :
Prepare a tabular analysis of May transactions , the column headings should be
as follows : cash + accounts receivable + equipment = Notes payable + Barone,
Capital .

9. Answer
Barone’s Repair Shop was started on May 1 by Nancy. Prepare a tabular analysis
of the following transactions for the month of May.
1. Invested $10,000 cash to start the repair shop.
Assets Liabilities Equity
Accounts Accounts Barone,
Cash + Receivable + Equipment = Payable + Capital
1. +10,000 +10,000 Investment

10. Answer
2. Purchased equipment for $5,000 cash.
Assets Liabilities Equity
Accounts Accounts Barone,
Cash + Receivable + Equipment = Payable + Capital
1. +10,000 +10,000 Investment
2. -5,000 +5,000

11. Answer
3. Paid $400 cash for May office rent.
Assets Liabilities Equity
Accounts Accounts Barone,
Cash + Receivable + Equipment = Payable + Capital
1. +10,000 +10,000 Investment
2. -5,000 +5,000
3. -400 -400 Expense

12. Answer
4. Received $5,100 from customers for repair service.
Assets Liabilities Equity
Accounts Accounts Barone,
Cash + Receivable + Equipment = Payable + Capital
1. +10,000 +10,000 Investment
2. -5,000 +5,000
3. -400 -400 Expense
4. +5,100 +5,100 Revenue

13. Answer
5. Withdrew $1,000 cash for personal use.
Assets Liabilities Equity
Accounts Accounts Barone,
Cash + Receivable + Equipment = Payable + Capital
1. +10,000 +10,000 Investment
2. -5,000 +5,000
3. -400 -400 Expense
4. +5,100 +5,100 Revenue
5. -1,000 -1,000 Drawings

14. Answer
6. Paid part-time employee salaries of $2,000.
Assets Liabilities Equity
Accounts Accounts Barone,
Cash + Receivable + Equipment = Payable + Capital
1. +10,000 +10,000 Investment
2. -5,000 +5,000
3. -400 -400 Expense
4. +5,100 +5,100 Revenue
5. -1,000 -1,000 Drawings
6. -2,000 -2,000 Expense

15. Answer
7. Incurred $250 of advertising costs, on account.
Assets Liabilities Equity
Accounts Accounts Barone,
Cash + Receivable + Equipment = Payable + Capital
1. +10,000 +10,000 Investment
2. -5,000 +5,000
3. -400 -400 Expense
4. +5,100 +5,100 Revenue
5. -1,000 -1,000 Drawings
6. -2,000 -2,000 Expense
7. +250 -250 Expense

16. Answer
8. Provided $750 of repair services on account.
Assets Liabilities Equity
Accounts Accounts Barone,
Cash + Receivable + Equipment = Payable + Capital
1. +10,000 +10,000 Investment
2. -5,000 +5,000
3. -400 -400 Expense
4. +5,100 +5,100 Revenue
5. -1,000 -1,000 Drawings
6. -2,000 -2,000 Expense
7. +250 -250 Expense
8. +750 +750 Revenue

17. Answer
9. Collected $120 cash for services previously billed.
Assets Liabilities Equity
Accounts Accounts Barone,
Cash + Receivable + Equipment = Payable + Capital
1. +10,000 +10,000 Investment
2. -5,000 +5,000
3. -400 -400 Expense
4. +5,100 +5,100 Revenue
5. -1,000 -1,000 Drawings
6. -2,000 -2,000 Expense
7. +250 -250 Expense
8. +750 +750 Revenue
9. +120 -120
6,820 + 630 + 5,000 = 250 + 12,200

18. Exercise 3
Transactions for Salem Company for the month of October are presented below.
1. Oct 1. Invested an additional $40,000 cash in the business.
2. Oct 3. Purchased land costing $28,000 for cash.
3. Oct 9. Purchased equipment costing $12,000 for $3,000 cash and the remainder on
credit.
4. Oct 13. Purchased supplies on account for $800.
5. Oct 17. Paid $1,000 for a one-year insurance policy.
6. Oct 22. Received $3,000 cash for services performed.
7. Oct 25. Received $4,000 for services previously performed on account.
8. Oct 28. Paid wages to employees for $2,500.
9. Oct 31. Salem withdrew $1,000 cash from the business.
Instructions
Journalize each transaction and post to the ledger accounts.

19. Answer
1. Oct 1. Invested an additional $40,000 cash in the business.
2. Oct 3. Purchased land costing $28,000 for cash.
3. Oct 9. Purchased equipment costing $12,000 for $3,000 cash and the remainder on
credit.
Oct.1 Cash ......................................................................................... 40,000
E. Petry, Capital...................................................................... 40,000
Oct.3 Land ......................................................................................... 28,000
Cash ....................................................................................... 28,000
Oct.9 Equipment ................................................................................ 12,000
Cash ....................................................................................... 3,000
Accounts Payable................................................................... 9,000

20. Answer
4. Oct 13. Purchased supplies on account for $800.
5. Oct 17. Paid $1,000 for a one-year insurance policy.
6. Oct 22. Received $3,000 cash for services performed.
Oct.13 Supplies .......................................................................................... 800
Accounts Payable .................................................................. 800
Oct.17 Prepaid Insurance ......................................................................... 1,000
Cash .................................................................................. 1,000
Oct.22 Cash .............................................................................................. 3,000
Service Revenue ................................................................ 3,000

21. Answer
7. Oct 25. Received $4,000 for services previously performed on account.
8. Oct 28. Paid wages to employees for $2,500.
9. Oct 31. Salem withdrew $1,000 cash from the business.
Oct.25 Cash............................................................................................. 4,000
Accounts Receivable........................................................... 4,000
Oct.28 Wages Expense........................................................................... 2,500
Cash................................................................................... 2,500
Oct.31 E. Petry, Drawing ....................................................................... 1,000
Cash................................................................................... 1,000

22. 1. Cash ................................................................................................ 40,000
E. Petry, Capital...................................................................... 40,000
2. Land ................................................................................................ 28,000
Cash ....................................................................................... 28,000
3. Equipment ....................................................................................... 12,000
Cash ....................................................................................... 3,000
Accounts Payable................................................................... 9,000
4. Supplies .......................................................................................... 800
Accounts Payable .................................................................. 800
5. Prepaid Insurance ........................................................................... 1,000
Cash ....................................................................................... 1,000
6. Cash ................................................................................................ 3,000
Service Revenue .................................................................... 3,000
7. Cash................................................................................................. 4,000
Accounts Receivable............................................................... 4,000
8. Wages Expense............................................................................... 2,500
Cash........................................................................................ 2,500
9. E. Petry, Drawing ............................................................................. 1,000
Cash........................................................................................ 1,000

23. Answer
Posting to ledger
Dr. Accounts Payable Cr.
Dr. Service revenue Cr.
Oct.9 9000
Oct.22 3000
Oct.13 800
Balance 3000
Balance 9800
Dr. Cash Cr.
Oct.1 40000 Oct.3 28000 Dr. Account receivable Cr.
Oct.25 4000
Oct.22 3000 Oct.9 3000
Oct.25 4000 Oct.17 1000
Oct.28 2500
Oct. 31 1000 Balance 4000
Balance 11500

24. Exercise 4
Prepare adjusting entries for the following transactions. Omit explanations
1) Depreciation on equipment is $800 for the accounting period.
2) There was no beginning balance of supplies and purchased $500 of office
supplies during the period. At the end of the period $80 of supplies were on
hand.
3) Prepaid rent had a $1,000 normal balance prior to adjustment. By year end
$600 was unexpired.

25. Answer
1) Depreciation Expense...................................................................... 800
Accumulated Depreciation—Equipment.................................. 800
2) Supplies Expense ............................................................................ 420
Supplies .................................................................................. 420
($500 – $80)
3) Rent Expense................................................................................... 400
Prepaid Rent ........................................................................... 400
($1,000 – $600)
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26. Exercise 5
B. Hans Albert Enterprises purchased computer equipment on May 1, 2009 for
$4,500. The company expects to use the equipment for 3 years. What
adjusting journal entry should the company make at the end of each month
if monthly financials are prepared (annual depreciation is $1,500)? What is
the book value of the equipment at May 31, 2009?
Answer
Depreciation Expense ........................................................... 125
Accumulated Depreciation............................................... 125
2. Cost $4,500
Accumulated Depreciation (125)
Book value $4,375

27. Exercise 6
A. Prepare the necessary adjusting entry for each of the following:
1. Services provided but unrecorded totaled $900.
2. Accrued salaries at year-end are $1,000.
3. Depreciation for the year is $600.
Answer:
1) Accounts Receivable........................................................................ 900
Service Revenue..................................................................... 900
2) Salaries Expense ............................................................................. 1,000
Salaries Payable ..................................................................... 1,000
3) Depreciation Expense...................................................................... 600
27 Accumulated Depreciation ...................................................... 600

28. Exercise 7
The following information is available for Amr Company for the year ended December
31, 2008:
Accounts payable $2,700
Accumulated depreciation, equipment 4,000
Amr, Capital 7,800
Intangible assets 2,500
Notes payable (due in 5 years) 7,500
Accounts receivable 1,500
Cash 2,600
Short-term investments 1,000
Equipment 7,500
Long-term investments 6,900
Instructions:
Use the above information to prepare a classified balance sheet for the year ended
December 31, 2009.
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29. Answer
Amr COMPANY
Balance Sheet
For the Year Ended December 31, 2009
Assets
Current Assets
Cash $2,600
Short-term investments 1,000
Accounts receivable 1,500
Total Current Assets $5,100
Investments
Long-term investments 6,900
Property, Plant, and Equipment
Equipment 7,500
Less Accumulated depreciation, equipment 4,000 3,500
Intangible assets 2,500
Total Assets $18,000
Liabilities and Owner’s Equity
Current Liabilities
Accounts payable $2,700
Long-term liabilities
Notes payable 7,500
Total Liabilities $10,200
Owner’s equity
Amr, Capital 7,800
Total owner’s equity 7,800
Total liabilities and owner’s equity $18,000
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