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

Question

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

Quizplus · Accepted Answer

The error that recorded the check for more than it should have been overstated advertising expense and understated cash by the difference, $180. The correcting entry will increase cash and decrease expense, which increases net income and equity. It is reported on the statement of cash flows as a cash inflow for operating activities.

While Performing Its Monthly Bank Reconciliation, the Bookkeeper for the Maynard