At the end of 2011, ABC Company did not make the adjusting entries indicated below. Indicate the effect of the error on 2011 Net Income, Assets, Liabilities, and Owner’s Equity (on December 31, 2011). Use O for overstate, U for understate, NE for no effect. Assume each error is independent of the others.
The journal entries are:
1.Depreciation a/c..Dr
To building
Hence net income and assets would be overstated while equity would as a result be overstated.
and
2.Accounts payable a/c..Dr
To cash
Hence assets and liabilities would be overstated.
| Net income | Assets | Liabilities | Owners equity | |
| Entry to record depreciation of building | Overstated | Overstated | No effect | Overstated |
| Entry to record payment of accounts payable | No effect | Overstated | Overstated | No effect |
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