When preparing the financial statements for the year ended October 31, accrued salaries owed to employees for October 30 and 31 were omitted.

When preparing the financial statements for the year ended October 31, accrued salaries owed to employees for October 30 and 31 were omitted. The accrued salaries were included in the first salary payment in November. Indicate which items will be erroneously stated, because of failure to correct the initial error, on (a) the income statement for the month of November and (b) the balance sheet as of November 30.


Answers:
a. Salary expense (or expenses) will be overstated because two days of salaries that should have been included as October expenses are being recorded in November. Net income will be understated.

b. The balance sheet will be correct. This is because salaries payable has been paid, and the net income errors for October and November have offset each other. Thus, owner’s equity (owner’s capital account) is correct.