A company mistakenly recorded a cash purchase of land as an expense. As a result of this error

Question

Quizplus · Accepted Answer

If the transaction had been recorded correctly, one asset (land) would have increased and another asset (cash) would have decreased, causing no net change in total assets. As the transaction was recorded, the asset cash decreased and the expense caused equity to decrease as well. Therefore, assets and equity were understated.

A Company Mistakenly Recorded a Cash Purchase of Land as an Expense