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13 April, 06:07

After preparing its financial statements for June, Pinnacle Corporation realizes that its income statement shows total revenues that are $500 too high and total expenses that are $500 too low. What effect will these errors have on Pinnacle's balance sheet for the month, assuming all other account balances listed on that sheet are correct?

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  1. 13 April, 07:18
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    The answer is: The total liabilities and equity will be $1,000 higher than the total assets amount, so the balance sheet will not be balanced.

    Explanation:

    If the income statement overstated revenue by $500 and understated expenses by $500, that will result in $1,000 in "fake" profit. If profit is overstated by $1,000 then the balance sheet will also be altered. The total liabilities and equity will be $1,000 higher than the total assets amount. The balance sheet will not be balanced.
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