Question

Gris Corp. purchases inventory on account and incorrectly records a debit to equipment and a credit to cash. Which entries would be used to reverse and correct this error? (Select all that apply.)

A. Debit accounts payable; credit inventory.
B. Debit equipment; credit inventory.
C. Debit cash; credit equipment.
D. Debit inventory; credit accounts payable.

Answer 1

To correct the incorrect journal entry by Gris Corp., two steps are needed: reversing the incorrect entry by debiting Equipment and crediting Cash, and recording the correct entry by debiting Inventory and crediting Accounts Payable. Therefore, the correct option is C and D.

Step-by-step explanation:

The student's question pertains to the reversal and correction of an incorrect journal entry in accounting. Gris Corp. made a mistake in recording the purchase of inventory by debiting equipment and crediting cash, which should have been debited to inventory and credited to accounts payable, since the transaction was made on account.

To correct this error, two steps are necessary:

1. Reverse the incorrect entry.
2. Record the correct entry.

To reverse the incorrect entry, we would:

• Debit Cash (because the credit to cash was incorrect and cash was not affected by the transaction).
• Credit Equipment (since equipment was incorrectly debited).

This deals with the incorrect entry made, and the reversing entry would be:

• Debit Equipment
• Credit Cash

Next, to record the correct entry, the following should be done:

• Debit Inventory (to record the cost of the inventory purchased).
• Credit Accounts Payable (since the purchase was on account).

Answer choices that correct the error are:

1. Debit Cash; Credit Equipment.
2. Debit Inventory; Credit Accounts Payable.

Therefore, the correct choices to reverse and correct this error would be C (Debit Cash; Credit Equipment) and D (Debit Inventory; Credit Accounts Payable).