While performing its monthly bank reconciliation,the bookkeeper for Mosaic Company discovered that a check written for $421 for advertising expense was recorded in the firm's books as $241.Which of the following shows the effect of correcting the error on the financial statements?

Question

Quizplus · Accepted Answer

Here, advertising expense was understated by $180, which is the difference between the actual amount of the check of $421 and the amount recorded of $241, and cash was overstated by the same amount. Correcting this error will decrease assets (cash) and stockholders' equity (retained earnings). It will increase expenses, which decreases net income. The $180 decrease to cash is reported on the statement of cash flows as a cash outflow for operating activities.

While Performing Its Monthly Bank Reconciliation,the Bookkeeper for Mosaic Company