Assume that the error in Exercise 3-15 was not corrected and that the accrued salaries
were included in the first salary payment in January. Indicate which items will be erroneously
stated, because of failure to correct the initial error, on (a) the income statement
for the month of January and (b) the balance sheet as of January 31.
Answer:
a. Salary expense (or expenses) will be overstated. Net income will be understated.
b. The balance sheet will be correct. This is because salaries payable has been
satisfied, and the net income errors have offset each other. Thus, owner’s equity is correct.
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