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On December31,2012, ACM Co. accrued as interest revenue $8,000 that applied to2013. On that date, the company recorded a debit to interest receivable and a credit to interest revenue. which of the following entries is needed on December31,2013, to correct for this error, assuming that ACM has not closed the books for2013?:
A) Debit retained earnings by8,000 & credit interest revenue by8,000.
B) Debit retained earnings by8,000 & credit interest receivable by8,000.
C) Debit interest revenue by8,000 & credit interest receivable by8,000.
D) No journal entry is needed because the error is counterbalanced.
B) Debit retained earnings by8,000 & credit interest receivable by8,000
No journal entry is needed because the error is counterbalanced
A) Debit retained earnings by $8,000 & credit interest revenue by $8,000.
Explanation : Since the interest revenue relates to Financial year2013 and it was wrongly credited ti Interest Revenue in the year2012 that inflated the profit of2012 by $8,000.To rectify this error we need to decrease the opening balance of Retained earnings(Ending balance of 2012) and bring the interest revenue to current accounting year.
