Effect of errors involving accounts receivable on financial statement ratios. Indicate-using O/S (overstated), U/S (understated), or NO
Question:
Effect of errors involving accounts receivable on financial statement ratios. Indicate-using O/S (overstated), U/S (understated), or NO (no effect)-the pre-tax effect of each of the following errors on (1) the rate of return on assets, (2) the accounts receivable turnover, and (3) the debt equity ratio. Each of these ratios is less than 100 percent before discovering the error.
a. A firm using the allowance method neglected to provide for estimated uncollectible accounts at the end of the year.
b. A firm using the allowance method neglected to write off specific accounts as uncollectible at the end of the year.
c. A firm credited a check received from a customer to Advances from Customers even though the customer was paying for purchases previously made on account.
d. A firm recorded as a sale a customer's order received on the last day of the accounting period, even though the firm will not ship the product until the next accounting period.
e. A firm sold goods on account to a particular customer and properly recorded the transactions in the accounts. The customer returned the goods within a few days of the sale, before paying for them, but the firm neglected to record the return on the goods in its accounts. The firm normally treats sales returns as a reduction in Sales Revenue.
Step by Step Answer:
Financial Accounting An Introduction To Concepts Methods And Uses
ISBN: 9780324183511
10th Edition
Authors: Clyde P. Stickney, Roman L. Weil