An improper cutoff of transactions around year-end occurs when journal entries are recorded in the wrong year. In this case, you are to determine the effects of various cutoff misstatements relating to recording cash receipts received on accounts receivable and the recording of credit sales. To effectively consider the effects of an improper cutoff, it is helpful to consider the underlying journal entries:

An example of a possible improper cutoff is to €œclose€ the cash receipts journal on December 30 and include December 31 sales in the subsequent year (e.g., the entry is dated January 1 rather than December 31). As a result, cash is understated by $3,000, while accounts receivable is overstated by $3,000 for the year just ended. The effects of closing the sales journal depend upon whether a periodic inventory or perpetual inventory system is in use. The effects of €œleaving open€ journals past year-end and dating January entries as of December may be determined in a similar manner.
Assume that the client made the following actual credit sales and received cash receipts as follows after 12/29/20X8:

Determine the overstatements and understatements that would result from the following situations. Assume that each situation is independent of one another. As an illustration, situation 1 has been solved for you. To simplify the problem, in the case of a perpetual inventory, assume that the year-end inventory count did not identify and correct themisstatement(s).

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Type of Transaction Cash receipt on an account receivable Proper Journal Entry (Entries) Cash 3,000.00 Accounts Receivable 3,000.00 Credit sale-periodic inventory system Accounts receivable 2,000.00 Sales 2,000.00 Credit sale-perpetual inventory system Accounts receivable 2,000.00 Sales 2,000.00 Cost of Goods Sold 1,300.00 Inventory 1,300.00 Cash Receipts (Receivables Collected) $4,000 3,000 2,500 3,200 Sales Cost of Goods Sold s 600 ,300 2,200 2,900 12/308 $1,000 2,000 12/31X8 1/1AX9 1/2IX9 3,500 4,000