Question

Anchor Company sold merchandise with a cost of $560 to a customer for $890 on account. Due to an error, this sale was never recorded in the accounting records. What effects will the failure to make the necessary entries have on the company's accounting equation?

Answer 1

Answer:

Explanation:

The journal entries are shown below:

Account receivable A/c Dr $890

       To Sales A/c                            $890

(Being the credit sales is made)

Cost of goods sold A/c Dr $560

        To Inventory A/c Dr           $560

(Being the inventory is sold at cost is recorded)

The difference equal to

= $890 -$560

= $330

The $330 reflect the understatement of total assets (Account receivable - inventory) and the understatement of total profit or equity (Sales - cost of goods sold)