At the end of 2017, the payroll supervisor for Claro, Inc. failed to accrue $24,790 in commissions for the outside salespersons. The cost was recorded in 2018 when the commissions were paid and Commission Expense was debited and Cash credited for the full amount. The error was not discovered until late in 2018 while reconciling year-end expenses for 2018. What is the proper treatment to correct the error? (Ignore income taxes.)
A) Do nothing, the error has counterbalanced.
B) Accrue $24,790 in Commission Expense for 2018.
C) Debit 2018 beginning Retained Earnings and credit Commission Expense for $24,790.
D) There is no error in either year because the commissions are recorded when paid.

Question

Quizplus · Accepted Answer

The error caused an understatement of expenses and net income in 2017 and an overstatement of expenses and net income in 2018. To correct the error, the beginning retained earnings balance for 2018 should be debited and commission expense should be credited for $24,790.

At the End of 2017, the Payroll Supervisor for Claro