Which of the following statements regarding posting and classification is correct
The Correct Answer and Explanation is:
The correct answer is: If a $5,000 credit to a stockholders’ equity account is misclassified as a $5,000 credit to a liability, the accounting equation will still balance.
Explanation:
This statement is correct because a classification error between accounts on the same side of the accounting equation does not affect the equation’s fundamental balance. The accounting equation is Assets = Liabilities + Stockholders’ Equity.
In this scenario, a $5,000 credit was intended for a stockholders’ equity account, which would increase the total value of the right side of the equation. Instead, the credit was posted to a liability account. This also increases the total value of the right side of the equation by the same amount. While the individual totals for liabilities and equity will be incorrect, their combined sum remains accurate. Because the total debits still equal the total credits, the overall accounting equation remains balanced. The error is in how the transaction is classified, not in the balancing of the accounts.
The other options are incorrect for the following reasons:
- First option: Recording a transaction with equal, though incorrect, debits and credits ($10 instead of $100) would still result in a balanced accounting equation.
- Second option: Posting a $100 debit as a $100 credit creates a larger discrepancy. The debit side would be understated by $100, and the credit side would be overstated by $100, resulting in the accounts being out of balance by $200.
- Fourth option: This statement reverses the accounting process. Posting involves transferring information from the journal to the ledger, not the other way around.
