The correct answer is option 'C', which states that the error of the purchase return book being undercast by Rs. 1000 will be rectified through a suspense account. Let's understand why this is the correct answer.

Suspense Account:
A suspense account is a temporary account used to record transactions when there is uncertainty or discrepancy in the accounting records. It is created to rectify errors or discrepancies until they can be properly identified and corrected. A suspense account is created to maintain the accuracy of the overall financial statements.

Explanation:
In this scenario, the error is that the purchase return book has been undercast by Rs. 1000. Undercasting means that the total amount calculated in the purchase return book is less than the actual amount. This error can occur due to various reasons, such as a mathematical mistake or overlooking a transaction.

When the purchase return book is undercast by Rs. 1000, it means that the total amount of purchase returns recorded in the book is Rs. 1000 less than it should be. This error affects the accuracy of the accounting records and financial statements.

To rectify this error, the suspense account is used. The undercast amount of Rs. 1000 will be debited to the suspense account. By doing so, the suspense account balance increases by Rs. 1000.

Impact on Financial Statements:
Using a suspense account allows the accounting records to remain balanced even when there are errors or discrepancies. However, the use of a suspense account is temporary, and the error should be identified and rectified as soon as possible.

The impact on the financial statements due to the use of a suspense account is that the purchase return amount is understated by Rs. 1000 in the purchase return book. This means that the expenses are understated, resulting in an understatement of the net profit.

Rectification Process:
Once the error is identified, the next step is to correct it. The undercast amount of Rs. 1000 should be added to the purchase return book to reflect the correct amount of purchase returns.

Additionally, the suspense account balance of Rs. 1000 should be transferred to the appropriate ledger account. In this case, it would be the purchase return account. This transfer ensures that the suspense account is cleared, and the financial statements reflect the correct figures.

Conclusion:
In summary, when the purchase return book is undercast by Rs. 1000, the error can be rectified through a suspense account. The suspense account is used to temporarily record the error until it is identified and rectified. Once the error is corrected, the suspense account balance is transferred to the appropriate ledger account, ensuring the accuracy of the financial statements.

C