Following are examples of errors that can be made in processing accounting data Listed next to each error is a nancial ratio Recording a sales transaction twice (Gross prot percentage) Overstating ending inventory (Quick ratio) Debiting a payment of a long term payable to a short term payable accou...

a 1 Ratio increases 2 Ratio decreases 3 Ratio decreases 4 Ratio increases b 1 Recording sales twice ...

Following are examples of errors that can be made in processing accounting data. Listed next to each

Question:

Following are examples of errors that can be made in processing accounting data. Listed next to each error is a ﬁnancial ratio.
• Recording a sales transaction twice (Gross proﬁt percentage)
• Overstating (Quick ratio)
• Debiting a payment of a long-term payable to a short-term payable account (Return on
assets)
• Understating the estimated useful life of a depreciable asset (Return on equity)
• Failing to prepare a year-end adjusting entry to record interest revenue (Price-earnings ratio)
• Failing to record the declaration of a cash shortly before year-end (Proﬁt margin percentage)
• Recording a purchase of a long-term asset in a current asset account (Current ratio)
Required:
(a) In general, indicate the effect on any ratio when the following happens:
(1) Numerator increases
(2) Numerator decreases
(3) Denominator increases
(4) Denominator decreases
(b) Indicate whether each error listed increases (overstates), decreases (understates), or has no impact on the ﬁnancial ratio with which it is coupled.
Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula Ending Inventory Formula =... Dividend
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