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| *Ostroff, Fair and Company>>>Small Business |
Small business question? |
On December 31, 2006, my accountant forgot to record $7,000 of amortization on office equipment. What is the effect of this error on assets, net income, and my equity? Assets are overestimated because the real value of assets is less than the amount you have now, so subtract 7000 from long-tetm assets, hence total assets net income is also over estimated because the amortization should be counted as cost of operations, and notice that you paid more taxes because your reported income was higher than it should Effect on equity depends on how you treated net income in your statements, if anything went to capital then its over estimated. It would cause your net assets to be overstated, since accumulated depreciation is understated. Net income is overstated, since expenses are understated. Your equity is overstated because the net income, which becomes a part of equity, is overstated. |
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