Accounting Fundamentals Certification (AFC) Practice Test

When correcting an error in accounting entries, it’s essential to reverse the original incorrect entry and then make the correct entry. In this scenario, Dawanda Corporation mistakenly debited Misc. Expenses instead of the correct account, Advertising Expenses.

To correct this, the first step is to eliminate the incorrect debit entry, which involved Misc. Expenses. This is done by crediting Misc. Expenses. After reversing the incorrect entry, the next step is to record the correct expense, which in this case is Advertising Expense. This requires debiting Advertising Expense.

Therefore, the correction involves a debit to Advertising Expense to reflect the true nature of the cash payment made for advertising, and a credit to Misc. Expenses to reflect the retraction of this expense from the incorrect account. This dual action maintains the integrity of the financial records, ensuring that expenses are properly categorized.