The following accounting errors were found in the journal of Crossé Company:
1. The payment of the current month's rent for $500 was recorded as a debit to Rent Payable and a credit to Cash, both for $500.
2. The collection of an account receivable for $400 was debited to Cash and credited to Service Revenue, both for $400.
3. A payment for Utilities Expense of $230 was recorded as a debit to Utilities Expense and a credit to Cash, both for $320.
4. A customer was billed $850 for services provided on account. Accounts Receivable was debited and Unearned Revenue was credited, both for $850.
5. A $600 accrual of Interest Revenue was recorded as a debit to Interest Expense and a credit to Interest Receivable, both for $600.
6. A payment of a $250 account payable was recorded as a debit to Accounts Payable and a credit to Cash, both for $250.
7. A $300 advance from a customer was recorded as a debit to Cash and a credit to Service Revenue, both for $300.
8. The purchase of $2,000 of equipment on account was recorded as a debit to Repair Expense and a credit to Accounts Payable, both for $2,000.
Instructions
(a) For each item, indicate the effect and amount of the error-understatement (U), overstatement (O), or no effect (NE)-on the income statement and balance sheet components. Use the following format, where the first one has been done for you as an example.

(b) Correct each error by reversing the incorrect entry and then recording the correct entry.
Taking It Further
Explain why it is incorrect to record billing a customer for services provided on account, as described in error 4.

Transcribed Image Text:

Income Statement Balance Sheet Item Revenue Expes Profit Assets Liabilities Owner's Equity Expenses Profit 1. NE U $500 $500 NE U $500 O $500