While performing its monthly bank reconciliation, the bookkeeper for the Grace Corporation noted that a deposit of $990 (received from a customer on account) was recorded in the company books as $900. Which of the following shows the effect of the correcting entry on the financial statements?

C. NA  =NA+NA  NA  −NA=NA  90   OA

Explanation:

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Amount Recorded = 900

Actual amount = 990

It requires a correcting entry that already been recorded with amount of $90, as follow

                          Dr.     Cr.

Cash                  90

Account Receivable  90

Effect on Accounting Equation

Asset                             =           Equity    +    Liability

Cash +90

Account Receivable -90

Net effect in accounting equation will be zero.

Cash flow from Operating activities will be increased by $90

So

Assets = Liab.  +  EquityRev . −   Expenses = Net Inc.  Cash Flow

NA          NA           NA                    NA         =    90            OA

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