Question

Determine the dollar effect, if any, of the following errors on the unadjusted trial balance?

1) Overstatement of Prepaid Expenses by $14,400 and understatement of Cash by $14,400.
2) Overstatement of Wages Expense by $900 and understatement of Cash by $900.
3) Overstatement of Inventory by $1,845 and understatement of Accounts Payable by $1,845.
4) No effect on the unadjusted trial balance.

Answer 1

Overestimating or underestimating certain accounts can have a dollar effect on the unadjusted trial balance. Errors that affect assets and liabilities will result in changes to those accounts on the unadjusted trial balance.

Step-by-step explanation:

1) The dollar effect of the error where Prepaid Expenses are overestimated by $14,400 and Cash is underestimated by $14,400 is a decrease in liabilities (Prepaid Expenses) and an increase in assets (Cash) of the same amount. The unadjusted trial balance will show a decrease in Prepaid Expenses by $14,400 and an increase in Cash by $14,400.

2) The dollar effect of the error where Wages Expense is overstated by $900 and Cash is underestimated by $900 is an increase in expenses (Wages Expense) and a decrease in assets (Cash) of the same amount. The unadjusted trial balance will show an increase in Wages Expense by $900 and a decrease in Cash by $900.

3) The dollar effect of the error where Inventory is overstated by $1,845 and Accounts Payable is underestimated by $1,845 is an increase in assets (Inventory) and a decrease in liabilities (Accounts Payable) of the same amount. The unadjusted trial balance will show an increase in Inventory by $1,845 and a decrease in Accounts Payable by $1,845.

4) If an error has no effect on the unadjusted trial balance, it means that the error does not impact either the assets, liabilities, or equity accounts. The dollar effect of this type of error is zero.