In reviewing the accounts of Tumblers Co., you discovered that a credit of $1,000 to prepaid insurance was wrongly credited to accounts receivable, and an $800 prepayment was remitted for a radio advertisement that was not posted. Which of the following statements reflects the effect of the errors?
A) There is no overstatement or understatement in the total assets and the owner's equity.
B) Total assets is understated by $200 and owner's equity is understated by $200.
C) Total assets is overstated by $300 and owner's equity is overstated by $300.
D) Total assets is overstated by $500 and owner's equity is overstated by $500.
E) Total assets is understated by $1,800 and owner's equity is understated by $1000.

Question

Quizplus · Accepted Answer

The error in crediting prepaid insurance to accounts receivable has no effect on total assets or owner's equity. The error in not posting the prepayment for the radio advertisement results in an understatement of total assets by $800 and an understatement of owner's equity by $800.

In Reviewing the Accounts of Tumblers Co