Question

Pixel Copies recorded a cash collection on account by debiting Cash and crediting Accounts Payable. What will the trial balance show for this​ error? A. Cash is overstated B. Expenses are overstated C. The trial balance will not balance D. Liabilities are overstated

Answer 1

The trial balance will still balance but will show liabilities to be overstated because of the incorrect credit to Accounts Payable. A correcting entry that debits Accounts Payable and credits Accounts Receivable is necessary to fix this error.

Step-by-step explanation:

When Pixel Copies debited Cash and credited Accounts Payable, they made an error because a cash collection on account should increase Cash (an asset) and decrease Accounts Receivable (another asset), not Accounts Payable (a liability). In this case, since Accounts Payable was credited instead of Accounts Receivable, the error will result in liabilities being overstated. This means that the trial balance will actually still balance, but it will not accurately reflect the true balances in each account.

The impact on the trial balance is that the cash account will be correctly increased but the credit to Accounts Payable is incorrect. The correct entry should have credited Accounts Receivable to reflect the reduction in amounts owed by customers. As a result, liabilities (Accounts Payable) will be understated and Accounts Receivable will not show the collection. This results in an error in the financial statements if not corrected.

This error will not immediately impact expenses, so expenses will not be overstated. To resolve this error, a correcting entry must be made that debits Accounts Payable and credits Accounts Receivable.

Answer 2

D. Liabilities are overstated

Step-by-step explanation:

The given journal entry is

Cash A/c Dr XXXXX

To Account payable A/c XXXXX

(Being the cash collection is recorded)

This above journal entry is wrong.

The correct journal entry is as follows:

Cash A/c Dr XXXXX

To Account receivable A/c XXXXX

(Being the cash collection is recorded)

For rectifying this error, either we reverse the given entry and pass the correct journal entry that is shown above or pass the entry that is given below:

Account payable A/c Dr XXXXX

To Account receivable A/c XXXXX

So, we can see the liabilities accounts are overstated due to this error