The balances for the accounts that follow appear in the Adjusted Trial Balance columns of the end-of-period spreadsheet

The balances for the accounts that follow appear in the Adjusted Trial Balance columns of the end-of-period spreadsheet. Indicate whether each account would flow into the income statement, statement of owner’s equity, or balance sheet.

1. Accounts Payable

2. Depreciation Expense

3. Nat Hager, Capital (beginning of period)

4. Office Equipment

5. Rent Revenue

6. Supplies Expense

7. Unearned Rent 

8. Wages Payable

Answer:

1. Balance sheet

2. Income statement

3. Statement of owner’s equity

4. Balance sheet

5. Income statement

6. Income statement

7. Balance sheet

8. Balance sheet

At the end of January, the first month of the business year, the usual adjusting entry transferring rent earned from the unearned rent account to a revenue account

At the end of January, the first month of the business year, the usual adjusting entry transferring rent earned from the unearned rent account to a revenue account was omitted. Indicate which items will be incorrectly stated, because of the error, on (a) the income statement for January and (b) the balance sheet as of January 31. Also indicate whether the items in error will be overstated or understated.

Answers:

a. Rent revenue (or revenues) will be understated. Net income will be understated.

b. Unearned rent (liabilities) will be overstated. Owner’s equity (owner’s capital account) at the end of the period will be understated.