Question

For each error below, indicate:

a. Which accounts are affected
b. Which assertions are violated.

1. An inventory purchase is received but not recorded until the company pays for the goods.
2. Certain repair costs that should be expensed are capitalized.
3. No loss is recorded or disclosed for a pending lawsuit against the client that is material, probable, and can be estimated.
4. Sales shipped FOB shipping point are recorded before the balance sheet date but not shipped until after the balance sheet date.

Answer 1

1. Inventory account will be affected and assertions of accuracy and valuation will be violated.

2. Assets are overstated and assertion classification is violated.

3. Liability is understated and assertions of accuracy is violated.

4. No impact.

Step-by-step explanation:

Assertions are certain claims of a business which a business must fulfill in order to make its financial statements reliable. A company has to record the expense when it is incurred in order to provide accuracy in valuation. In the given cases the assertions are violated which impact business accounts.