Test: Rectification Of Errors - 4 - SSC CGL MCQ

Explanation:
The error in recording the purchase of goods from A for Rs. 10,000 in the sales book will result in an increase in gross profit. This is because the purchase of goods should have been recorded in the purchases book, not the sales book. By recording the purchase in the sales book, it will be treated as a sale rather than a purchase, leading to an overstatement of sales and an understatement of purchases.
Here's a detailed explanation:
1. Nature of the error:
The error is that the purchase of goods from A for Rs. 10,000 was recorded in the sales book instead of the purchases book. This means that the purchase was treated as a sale.
2. Impact on gross profit:
Since the purchase was recorded as a sale, the sales figure will be overstated by Rs. 10,000, and the purchases figure will be understated by the same amount. As a result, the gross profit will be higher than it should be.
3. Calculation:
To understand the impact on gross profit, let's consider the formula for calculating gross profit:
Gross Profit = Sales - Cost of Goods Sold
In this case, the error in recording the purchase will lead to an increase in sales by Rs. 10,000, but the cost of goods sold will remain the same. Therefore, the gross profit will increase by Rs. 10,000.
4. Conclusion:
The error in recording the purchase of goods from A for Rs. 10,000 in the sales book will result in an increase in gross profit. This is because the purchase was treated as a sale, leading to an overstatement of sales and an understatement of purchases.

This error will give the double affect as instead of credit of Rs.1000 for purchase return, a debit of Rs.1000 is posted to sales return a/c.

Due to this, debit of trial balance will be Rs.2000 more than the credit side. 
 

Error of Commission:
- An error of commission occurs when an amount is posted in the wrong account or written on the wrong side of the account.
- This type of error involves taking an action that should not have been taken, resulting in a mistake in recording the transaction.
- It is called an error of commission because an action was committed that should not have been committed.
Error of Omission:
- An error of omission, on the other hand, occurs when a transaction or an amount is completely left out or omitted from the accounting records.
- This type of error involves failing to take an action that should have been taken, resulting in a missing entry or transaction.
Error of Principle:
- Error of principle occurs when a fundamental accounting principle is violated in the recording of a transaction.
- This type of error involves recording a transaction in a way that goes against the basic principles of accounting, such as recording personal expenses as business expenses.
Compensating Error:
- A compensating error occurs when two errors are made that offset each other, resulting in the correct amount being recorded.
- For example, if an amount is overestimated in one account and underestimated in another account, these errors may cancel each other out.
Answer:
The correct answer for the given question is error of commission.

To understand how the total of the trial balance would be affected by the wrongly posted purchase return, let's analyze the situation step by step:
1. The purchase return of Rs.84 was wrongly posted to the debit of the sales return account. This means that the sales return account was incorrectly debited by Rs.84.
2. However, the purchase return was correctly entered in the supplier's account. This means that the supplier's account was credited by Rs.84.
3. In the trial balance, the sales return account would have a debit balance of Rs.84 due to the incorrect posting.
4. The supplier's account, on the other hand, would have a credit balance of Rs.84 due to the correct entry.
5. Since the trial balance is prepared by adding the debit balances and the credit balances separately, the incorrect debit balance of Rs.84 in the sales return account would be offset by the correct credit balance of Rs.84 in the supplier's account.
6. As a result, the total of the trial balance would show that the debit side is Rs.84 more than the credit side, as the incorrect debit balance of Rs.84 is not offset by any corresponding credit entry.
Therefore, the correct answer is D: the debit side to be Rs.168 more than the credit side.

Explanation:
To determine which account to debit, we need to consider the nature of the transaction and the accounting principles.

1. Nature of the transaction:

- The payment of Rs. 200 is for erecting a machine.
- Erecting a machine can be considered as an expense incurred to bring the machine into working condition.

2. Accounting principles:

- According to the expense recognition principle, expenses should be recognized when they are incurred, regardless of when the payment is made.
- The wages paid for erecting the machine can be considered as a direct cost of acquiring the machine.

Based on the above considerations, the Rs. 200 paid as wages for erecting a machine should be debited to the Machine account.

This is because:
- The Machine account represents the cost of acquiring and installing the machine.
- By debiting the Machine account, we are recording the expense of erecting the machine as a part of the cost of the machine.
Therefore, the correct answer is B: Machine account.

Explanation:
To solve this problem, we need to understand the concept of debiting and crediting accounts in accounting. When an expense is incurred, it is debited to the relevant account.
In this case, the amount of Rs. 1,000 spent on repairing old furniture is an expense. Therefore, it should be debited to the relevant account, which is the Furniture account.
So, the correct answer is Furniture account (Option B).
To summarize:
- When an expense is incurred, it is debited to the relevant account.
- The amount of Rs. 1,000 spent on repairing old furniture is an expense.
- Therefore, it should be debited to the Furniture account.

Explanation:
When goods worth Rs. 50 are given as charity, they should be credited to the Purchase account. Here's why:
- The Purchase account is used to record all the goods purchased for the business.
- When goods are given as charity, it means they are being distributed for free and are not intended for sale.
- Therefore, the goods given as charity are not considered as sales and should not be credited to the Sales account.
- The Cash account is used to record cash transactions, but in this case, no cash is involved as the goods are given as charity.
- The Charity account is not a standard account and is not used to record transactions. It is usually used as a sub-category under the Expenses account to track charitable contributions made by the business.
- Since the goods given as charity are originally purchased by the business, they should be credited to the Purchase account to reflect the reduction in inventory and the cost of goods sold.
In conclusion, when goods worth Rs. 50 are given as charity, they should be credited to the Purchase account.

Explanation:
To determine the correct account to credit when goods worth Rs. 100 are taken by the proprietor for domestic use, we need to understand the accounting principles involved. In this scenario, the proprietor is essentially consuming the goods for personal use, rather than selling them or using them for business purposes.
The correct account to credit in this situation would be the Purchases account. Here's why:
1. Sales account: The sales account is used to record the revenue generated from the sale of goods or services to customers. Since the proprietor is not selling the goods, crediting the sales account would be incorrect.
2. Proprietor's personal expenses: This account is used to record the proprietor's personal expenses, such as salary or withdrawals from the business. However, taking goods for personal use is not considered an expense incurred by the proprietor, so this account would not be applicable in this situation.
3. Purchases account: The purchases account is used to record the cost of goods purchased for the purpose of resale or use in the business. When the proprietor takes goods for personal use, it essentially reduces the inventory available for sale or business use. Crediting the purchases account reflects this reduction in inventory accurately.
4. Expenses account: The expenses account is used to record the costs incurred in the ordinary course of business operations, such as rent, utilities, or wages. Taking goods for personal use does not fall under the category of business expenses, so crediting the expenses account would not be appropriate.
In summary, when goods worth Rs. 100 are taken by the proprietor for domestic use, the correct account to credit would be the Purchases account. This ensures accurate recording of the reduction in inventory available for sale or business use.

Explanation:
Errors of commission refer to mistakes made in recording transactions or entries that result in incorrect information being included in the financial statements. These errors can have various consequences, including affecting the accuracy of the balance sheet and trial balance. However, errors of commission do not permit the following:
- Correct totalling of the balance sheet: When an error of commission occurs, it may lead to incorrect figures being included in the balance sheet. This can result in the total of assets not matching the total of liabilities and equity, leading to an imbalance in the balance sheet.
- Correct totalling of the trial balance: The trial balance is a statement that lists all the accounts and their respective balances. An error of commission can lead to incorrect account balances being included in the trial balance, which can result in the totals not agreeing.
- The trial balance to agree: The purpose of the trial balance is to ensure that the debits and credits in the accounting system are in balance. Errors of commission can disrupt this balance and prevent the trial balance from agreeing.
Therefore, the correct answer is: C. The trial balance to agree.

The preparation of a trial balance is for:

The trial balance is a statement that lists all the general ledger accounts and their balances. It is prepared at the end of an accounting period to ensure that the debits and credits are equal and to identify any errors that may have occurred during the recording process. The main purpose of preparing a trial balance is to:

Locating clerical errors:

• The trial balance helps in locating clerical errors, which are mistakes made in the recording process. These errors can include transposition errors, incorrect postings, or omissions of entries.


• By listing all the accounts and their balances, the trial balance allows for a comparison between the debit and credit totals. If the totals do not match, it indicates that there is an error in the recording process.


• Once the errors are identified, they can be corrected before preparing the final financial statements.

In conclusion, the preparation of a trial balance is primarily for locating clerical errors. While it may also help in identifying errors of commission or principle, its main purpose is to ensure the accuracy of the recording process by detecting and correcting clerical errors.

Explanation:
Background Information:
- Rs. 200 was received from Smith.
- Smith's account was written off as a bad debt.
Analysis:
- When a customer's account is written off as a bad debt, it means that the company has determined that it is unlikely to recover the amount owed.
- However, if any amount is received from the customer after the account has been written off, it needs to be recorded.

- The Rs. 200 received from Smith should be credited to the Bad Debts Recovered account.
- This is because the amount received is a recovery of a previously written-off bad debt.
- By crediting the Bad Debts Recovered account, the company acknowledges the recovery of a portion of the bad debt.
Summary:
- The Rs. 200 received from Smith, whose account was written off as a bad debt, should be credited to the Bad Debts Recovered account.

Explanation:
The correct answer is Option B: An error of principle.
Here's a detailed explanation of why it is an error of principle:
1. An error of principle occurs when a transaction is recorded in the wrong account category or when a fundamental accounting principle is violated.
2. In this case, the purchase of office furniture should have been debited to the Furniture and Fixtures account, which is an asset account, rather than the General Expense account.
3. By debiting the General Expense account, the expense is incorrectly recorded as a general operating expense rather than as an asset purchase.
4. This violates the fundamental accounting principle of proper classification and presentation of financial transactions.
5. The error of principle can have a significant impact on the accuracy of the financial statements and may result in misleading financial information.
6. To correct this error, the entry should be reversed by debiting the General Expense account and crediting the Furniture and Fixtures account.
7. The correct entry will ensure that the office furniture is correctly recorded as an asset on the balance sheet and not as an expense on the income statement.
In conclusion, the purchase of office furniture being debited to the General Expense account is an error of principle because it violates the fundamental accounting principle of proper classification and presentation of financial transactions.

 The correct answer is A.

The goods destroyed by fire is a loss for the business and is a nominal account. Therefore, according to the rule of nominal account, all the expenses and losses are to be debited. Hence, "Loss by fire A/c" is debited when goods are destroyed by fire and "purchases A/c" is credited.

The sale of furniture is credited to the furniture account.