Adams Company has employed a bookkeeper who is inexperienced. On December 30, after reviewing the records for the year, you discover the following error. On June 1, Adams Company paid a supplier $700 on account. The bookkeeper recorded this by debiting Cash for $700 and crediting Accounts Payable for $700. Required: Prepare a correcting entry on December 30. Make sure to enter the day for each separate transaction.

Dr Accounts Payable $1400

Cr Cash Account $1400

Explanation:

What should be the entry:

Dr Accounts Payable $700

Cr Cash Account $700

What is the entry passed:

Dr Cash Account $700

Cr Accounts Payable $700

Solution of the error:

Now the first step would be the reversal of the incorrect entry passed which includes opposite entry and is given is as under:

Dr Accounts Payable $700

Cr Cash Account $700

Now, the entry that must be passed will be recorded:

Dr Accounts Payable $700

Cr Cash Account $700

If we summarize the solution entry, we see that the reversal entry was made and hence we passed the correct entry with double value. The double value was passed to eliminate the effect of incorrect entry and enter the correct entry.

So alternative double entry would be:

Dr Accounts Payable $1400

Cr Cash Account $1400