Lucky Leotis Case Study

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After reviewing the income statement, I can notice Lucky Leotis that when completing your financial statement, you lacked in following the rules of GAAPS. For this reason, your monthly income was higher then it should have been. I have attached the corrected copy and will explain the errors that you have made.
When you had recorded the amount of interest revenue, you lacked to recognize that you were supposed to state the amount of revenue applicable for only that period (monthly). You had recorded the value of interest that you had to pay for the investment for the whole year, $ 7800, rather than stating the amount for the 16 days when it was initially purchased which was $ 335.48. Furthermore, because of this mistake, you had violated the revenue recognition principle. You mentioned the amount of interest you would receive for the whole year, even though the revenue has only been acquired for 16 days. In addition, the accounts interest revenue, bank or accounts receivable was overstated by $7464.52. This …show more content…

You are required to debit supplies expense in order to show how much supplies are consumed, and credit supplies to depict the amount of supplies reduced by. Since you have not followed these steps, you have disrupted the full disclosure principal because you have not recognized to mention the amount of supplies used through the supplies expense. This has effected the supplies and supplies expense account by understating them by $1110, because there is no mention of supplies expense on the income statement, so likewise supplies would lack in being reduced by the same amount. This occurred because you did not state that changes in these accounts. This ultimately effected the income, causing it to be higher than it should be as there was no supplies expense account stating the amount of supplies that were

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