Question

Whitman Company paid $630 cash on account to a creditor. The transaction was incorrectly recorded as a debit to Cash of $360 and a credit to Accounts Receivable of $360. The correcting entry is _____.

Answer 1

To correct the accounting error where Whitman Company incorrectly recorded a transaction a series of accounting entries is needed to first reverse the incorrect initial entry and then record the correct amounts.

Step-by-step explanation:

The correcting entry required to rectify the accounting mistake would involve several steps, due to the incorrect initial amounts and accounts. Whitman Company needs to address two issues: the incorrect debit amount to Cash, and the incorrect account credited (Accounts Receivable instead of Accounts Payable).

Firstly, we need to reverse the incorrect entry with a credit to Cash for $360 and a debit to Accounts Receivable for $360. This resets the effect of the wrongful transaction. Secondly, the correct entry should be a debit to Cash for $630, in order to reflect the proper payment amount that has taken place and a credit to Accounts Payable for $630, as it was a payment on account to a creditor and not a receivable.

The full correcting entry would be:

1. Credit Cash for $360 (to reverse the incorrect debit).
2. Debit Accounts Receivable for $360 (to reverse the incorrect credit).
3. Debit Cash for $630 (to record the actual payment).
4. Credit Accounts Payable for $630 (to reflect the correct account affected)