Answer:
This error is likely to be discovered because it violates the correct accounting treatment for the purchase of a new machine.
Step-by-step explanation:
Here's why:
1. Incorrect expense classification: The $20,000 expenditure for the new machine was erroneously debited to the Machinery Maintenance Expense account. This account is typically used to record expenses related to the maintenance and repair of machinery, not for the purchase of new machinery.
2. Impact on financial statements: By debiting the wrong account, the company's financial statements will be distorted. Machinery Maintenance Expense will be overstated by $20,000, leading to an understatement of net income and an overstatement of expenses. Additionally, the value of the machinery asset will be understated on the balance sheet.
3. Depreciation inconsistency: The error will become evident during the depreciation process. Since the machine was mistakenly expensed instead of being capitalized as an asset, it will not be included in the depreciation calculations. As a result, the company's depreciation expense and accumulated depreciation will be incorrect, leading to inconsistencies in the financial statements.
4. Year-end reconciliation: During the year-end closing process, accountants typically review and reconcile various accounts to ensure accuracy. Upon reviewing the Machinery Maintenance Expense account, they will realize the incorrect classification and investigate further, leading to the discovery of the error.
5. Internal controls and audits: Strong internal controls and periodic audits play a crucial role in identifying and rectifying accounting errors. If the company has proper controls and periodic audits, this error is likely to be detected during these processes.