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Sales for Rs. 5,000 was entered as purchase. The effect of this error will be:
- a)G.P. will increase by Rs. 5,000
- b)G.P. will decrease by Rs. 5,000
- c)G.P. will decrease by Rs. 10,000
- d)G.P. will increase by Rs. 10,000
Correct answer is option 'C'. Can you explain this answer?
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Most Upvoted Answer
Sales for Rs. 5,000 was entered as purchase. The effect of this error ...
Effect of entering sales as purchase on Gross Profit
Explanation:
When sales are entered as purchases, it means that the sales amount is not recorded as revenue, but it is recorded as an expense of the business. This will have a significant impact on the calculation of Gross Profit.
Gross Profit is calculated as the difference between revenue and cost of goods sold. If sales are entered as purchases, it will reduce the revenue and increase the cost of goods sold by the same amount. This will lead to a decrease in Gross Profit.
Let's take an example to understand this better.
Suppose the revenue for a business is Rs. 50,000 and the cost of goods sold is Rs. 30,000. The Gross Profit will be Rs. 20,000.
Now, if sales of Rs. 5,000 are entered as purchases, the revenue will reduce to Rs. 45,000 and the cost of goods sold will increase to Rs. 35,000. The Gross Profit will now be Rs. 10,000.
Effect on Gross Profit:
- Option A: G.P. will increase by Rs. 5,000 - This option is incorrect. Entering sales as purchases will not increase Gross Profit, it will decrease it.
- Option B: G.P. will decrease by Rs. 5,000 - This option is also incorrect. The decrease in Gross Profit will be equal to the amount of sales entered as purchases, which is Rs. 5,000. This option does not take into account the effect of the error on both revenue and cost of goods sold.
- Option C: G.P. will decrease by Rs. 10,000 - This option is correct. As explained above, entering sales as purchases will reduce revenue and increase the cost of goods sold. This will result in a decrease in Gross Profit by the amount of sales entered as purchases, which is Rs. 5,000. Therefore, the correct option is C.
- Option D: G.P. will increase by Rs. 10,000 - This option is incorrect. As explained above, entering sales as purchases will not increase Gross Profit, it will decrease it. Therefore, this option is incorrect.
Conclusion:
Entering sales as purchases is a common error that can have a significant impact on the calculation of Gross Profit. It is important to ensure that all transactions are recorded accurately to avoid such errors. In this case, the correct answer is option C, which states that Gross Profit will decrease by Rs. 10,000.
Explanation:
When sales are entered as purchases, it means that the sales amount is not recorded as revenue, but it is recorded as an expense of the business. This will have a significant impact on the calculation of Gross Profit.
Gross Profit is calculated as the difference between revenue and cost of goods sold. If sales are entered as purchases, it will reduce the revenue and increase the cost of goods sold by the same amount. This will lead to a decrease in Gross Profit.
Let's take an example to understand this better.
Suppose the revenue for a business is Rs. 50,000 and the cost of goods sold is Rs. 30,000. The Gross Profit will be Rs. 20,000.
Now, if sales of Rs. 5,000 are entered as purchases, the revenue will reduce to Rs. 45,000 and the cost of goods sold will increase to Rs. 35,000. The Gross Profit will now be Rs. 10,000.
Effect on Gross Profit:
- Option A: G.P. will increase by Rs. 5,000 - This option is incorrect. Entering sales as purchases will not increase Gross Profit, it will decrease it.
- Option B: G.P. will decrease by Rs. 5,000 - This option is also incorrect. The decrease in Gross Profit will be equal to the amount of sales entered as purchases, which is Rs. 5,000. This option does not take into account the effect of the error on both revenue and cost of goods sold.
- Option C: G.P. will decrease by Rs. 10,000 - This option is correct. As explained above, entering sales as purchases will reduce revenue and increase the cost of goods sold. This will result in a decrease in Gross Profit by the amount of sales entered as purchases, which is Rs. 5,000. Therefore, the correct option is C.
- Option D: G.P. will increase by Rs. 10,000 - This option is incorrect. As explained above, entering sales as purchases will not increase Gross Profit, it will decrease it. Therefore, this option is incorrect.
Conclusion:
Entering sales as purchases is a common error that can have a significant impact on the calculation of Gross Profit. It is important to ensure that all transactions are recorded accurately to avoid such errors. In this case, the correct answer is option C, which states that Gross Profit will decrease by Rs. 10,000.
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Community Answer
Sales for Rs. 5,000 was entered as purchase. The effect of this error ...
To analyze the effect of incorrectly recording a sale as a purchase on the gross profit (G.P.), consider the following:
- Recording as Purchase: By recording sales of Rs. 5,000 as purchases, the total purchases for the period increase by Rs. 5,000. This increases the cost of goods sold (COGS).
- Effect on Sales: Since the Rs. 5,000 was a sale but entered as a purchase, the sales figure is understated by Rs. 5,000.
Net Effect on Gross Profit: The gross profit is calculated as Sales minus Cost of Goods Sold (COGS). In this error:
- The sales are under-reported by Rs. 5,000.
- The purchases (part of COGS) are over-reported by Rs. 5,000.
Both these actions combined lead to the COGS appearing Rs. 5,000 higher, and sales appearing Rs. 5,000 lower, which means the gross profit will be affected by the sum of these two errors:
ΔG.P. = −5,000(due to lower sales) − 5,000(due to higher COGS) = −10,000
ΔG.P. = −5,000(due to lower sales) − 5,000(due to higher COGS) = −10,000
Thus, the gross profit will decrease by Rs. 10,000, leading us to the answer: C: G.P. will decrease by Rs. 10,000
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Sales for Rs. 5,000 was entered as purchase. The effect of this error will be:a)G.P. will increase by Rs. 5,000b)G.P. will decrease by Rs. 5,000c)G.P. will decrease by Rs. 10,000d)G.P. will increase by Rs. 10,000Correct answer is option 'C'. Can you explain this answer?
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Sales for Rs. 5,000 was entered as purchase. The effect of this error will be:a)G.P. will increase by Rs. 5,000b)G.P. will decrease by Rs. 5,000c)G.P. will decrease by Rs. 10,000d)G.P. will increase by Rs. 10,000Correct answer is option 'C'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Sales for Rs. 5,000 was entered as purchase. The effect of this error will be:a)G.P. will increase by Rs. 5,000b)G.P. will decrease by Rs. 5,000c)G.P. will decrease by Rs. 10,000d)G.P. will increase by Rs. 10,000Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Sales for Rs. 5,000 was entered as purchase. The effect of this error will be:a)G.P. will increase by Rs. 5,000b)G.P. will decrease by Rs. 5,000c)G.P. will decrease by Rs. 10,000d)G.P. will increase by Rs. 10,000Correct answer is option 'C'. Can you explain this answer?.
Sales for Rs. 5,000 was entered as purchase. The effect of this error will be:a)G.P. will increase by Rs. 5,000b)G.P. will decrease by Rs. 5,000c)G.P. will decrease by Rs. 10,000d)G.P. will increase by Rs. 10,000Correct answer is option 'C'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Sales for Rs. 5,000 was entered as purchase. The effect of this error will be:a)G.P. will increase by Rs. 5,000b)G.P. will decrease by Rs. 5,000c)G.P. will decrease by Rs. 10,000d)G.P. will increase by Rs. 10,000Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Sales for Rs. 5,000 was entered as purchase. The effect of this error will be:a)G.P. will increase by Rs. 5,000b)G.P. will decrease by Rs. 5,000c)G.P. will decrease by Rs. 10,000d)G.P. will increase by Rs. 10,000Correct answer is option 'C'. Can you explain this answer?.
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Sales for Rs. 5,000 was entered as purchase. The effect of this error will be:a)G.P. will increase by Rs. 5,000b)G.P. will decrease by Rs. 5,000c)G.P. will decrease by Rs. 10,000d)G.P. will increase by Rs. 10,000Correct answer is option 'C'. Can you explain this answer?, a detailed solution for Sales for Rs. 5,000 was entered as purchase. The effect of this error will be:a)G.P. will increase by Rs. 5,000b)G.P. will decrease by Rs. 5,000c)G.P. will decrease by Rs. 10,000d)G.P. will increase by Rs. 10,000Correct answer is option 'C'. Can you explain this answer? has been provided alongside types of Sales for Rs. 5,000 was entered as purchase. The effect of this error will be:a)G.P. will increase by Rs. 5,000b)G.P. will decrease by Rs. 5,000c)G.P. will decrease by Rs. 10,000d)G.P. will increase by Rs. 10,000Correct answer is option 'C'. Can you explain this answer? theory, EduRev gives you an
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