Adjusting Journal Entries for Current Year Sales
Lesson:
Sometimes auditors find mistakes that need to be corrected, either because of fraud or mistakes by the original accounting team.
When sales revenue is underreported:
- Debit accounts receivable
- Credit sales revenue
- Debit COGS
- Credit Inventory
- Debit sales revenue
- Credit accounts receivable
- Debit Inventory
- Credit COGS
You're an accountant trying to implement the recommendations made by an external auditor.
This is what you've been told:
- The error occurred in the current year's records.
- An auditor reported that the sales revenue account had been under reported by $41.00.
- The inventory associated with this error is worth $2.
What journal entry or journal entries should be made?
Answer:
-
Accounts receivable $41.00 Sales revenue $41.00 COGS $2.00 Inventory $2.00
Explanation:
- First we update the sales records.
Accounts receivable $41.00 Sales revenue $41.00 - Then we update the inventory records.
Accounts receivable $41.00 Sales revenue $41.00 COGS $2.00 Inventory $2.00