Question

Prepare the journal entry to correct an error for a journal entry showing a debit to Inventory and a credit to Accounts Payable for $1,400. The company actually paid for the purchase with cash.

Answer 1

To correct the journal entry mistake, debit Accounts Payable and credit Cash for the same amount of $1,400. This corrects the payment method from an outstanding payable to the actual use of cash.

Step-by-step explanation:

To correct the error in the journal entry that debited Inventory and credited Accounts Payable for $1,400, when the purchase was made with cash, the following journal entries should be made:

1. Debit Accounts Payable for $1,400 to reverse the incorrect credit.
2. Credit Cash for $1,400 to reflect the actual payment method.

These adjustments will ensure that the company's financial statements accurately reflect the use of cash in this transaction instead of an outstanding payable. Noel's vigilance in noticing a similar error with equipment billing highlights the importance of close attention to detail in preventing financial misstatements.