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After rectification of the following errors, effect on Net profit will be
i) A cheque dishonoured Rs.3,100 debited to discount A/c
ii) Sales book (undercast) short by Rs.23,000
iii) A customer returned goods of value of Rs.1,200, included in stock but not recorded
- a)Increased by Rs. 24,900
- b)Decreased by Rs. 24,900
- c)Increased by Rs. 23,700
- d)No change
Correct answer is option 'A'. Can you explain this answer?
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After rectification of the following errors, effect on Net profit will...
Effect on Net Profit due to Rectification of Errors
i) Cheque Dishonoured Rs.3,100 debited to Discount A/c
- The error here is that the amount should have been debited to the customer's account instead of Discount A/c.
- Rectification entry: Debit Customer's A/c and Credit Discount A/c
- Effect on Net Profit: No effect as both Discount and Customer's A/c are nominal accounts and do not affect the Net Profit.
ii) Sales Book (undercast) short by Rs.23,000
- The error here is that the total sales have been understated by Rs.23,000.
- Rectification entry: Debit Sales A/c and Credit Suspense A/c
- Effect on Net Profit: The Net Profit will increase by Rs.23,000 as the sales have been understated.
iii) Customer returned goods of value of Rs.1,200, included in stock but not recorded
- The error here is that the stock has been overstated by Rs.1,200.
- Rectification entry: Debit Stock A/c and Credit Customer's A/c
- Effect on Net Profit: The Net Profit will decrease by Rs.24,900 (Rs.23,700 from understated sales and Rs.1,200 from overstated stock) as the sales have been understated and the stock has been overstated.
Therefore, the correct answer is option 'A' - Increased by Rs.24,900.
i) Cheque Dishonoured Rs.3,100 debited to Discount A/c
- The error here is that the amount should have been debited to the customer's account instead of Discount A/c.
- Rectification entry: Debit Customer's A/c and Credit Discount A/c
- Effect on Net Profit: No effect as both Discount and Customer's A/c are nominal accounts and do not affect the Net Profit.
ii) Sales Book (undercast) short by Rs.23,000
- The error here is that the total sales have been understated by Rs.23,000.
- Rectification entry: Debit Sales A/c and Credit Suspense A/c
- Effect on Net Profit: The Net Profit will increase by Rs.23,000 as the sales have been understated.
iii) Customer returned goods of value of Rs.1,200, included in stock but not recorded
- The error here is that the stock has been overstated by Rs.1,200.
- Rectification entry: Debit Stock A/c and Credit Customer's A/c
- Effect on Net Profit: The Net Profit will decrease by Rs.24,900 (Rs.23,700 from understated sales and Rs.1,200 from overstated stock) as the sales have been understated and the stock has been overstated.
Therefore, the correct answer is option 'A' - Increased by Rs.24,900.
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After rectification of the following errors, effect on Net profit will...
Option A
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After rectification of the following errors, effect on Net profit will bei) A cheque dishonoured Rs.3,100 debited to discount A/cii) Sales book (undercast) short by Rs.23,000iii) A customer returned goods of value of Rs.1,200, included in stock but not recorded a)Increased by Rs. 24,900b)Decreased by Rs. 24,900c)Increased by Rs. 23,700d)No change Correct answer is option 'A'. Can you explain this answer?
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