Sample Essay

(To adjust the amount of warranty expenses)

5.         Sales                                                                                        $100,000

Accounts Receivable                                                                          $100,000

(To rectify entry for credit sales)

6.         Returns expense                                                                      $10,300

Allowance for Returns                                                                        $10,300

(To adjust allowance for returns)

7.         Doubtful accounts expense                                                     $5,960

Allowance for doubtful accounts                                                       $5,960

(To adjust allowance for doubtful accounts)


Schedule for Computation of Correct Net Income
Reported Net Income   252,687
Add: decrease in Cost of Goods Sold   6,300
Less: decrease in Merchandise Inventory 60,000  
Less: Warranty Expenses 20,000  
Less: Decrease in Sales 100,000  
Less: Returns Expense 10,300  
Less: Doubtful accounts expense 5,960 (196,260)
Adjusted Net Income 62,727


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