Assume that the error in Exercise 3-15 was not corrected and that the accrued salaries were included in the first salary payment in November. Indicate which items will be erroneously stated, because of failure to correct the initial error, on (a) the income statement for the month of November and (b) the balance sheet as of November 30.
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.