Explanation:

Background:
In accounting, the sales book is used to record all sales transactions made by a business. It serves as a subsidiary ledger to the general ledger and provides a detailed record of all sales made during a specific period. The sales book typically includes information such as the date of the sale, customer details, invoice number, and the amount of the sale.

Error in the Sales Book:
In this scenario, a sales invoice was issued to a customer but was entered erroneously in the sales book, resulting in an understatement of Rs. 90,000. This means that the recorded sales amount in the sales book is lower than the actual sales amount by Rs. 90,000.

Impact of the Error:
The error in the sales book will have several implications for the business's financial records and reporting. Some of these implications include:

1. Revenue Recognition: Revenue recognition is an important accounting principle, and the error in the sales book understates the actual revenue earned by the business. This means that the financial statements, such as the income statement and the statement of financial position, will not reflect the true financial performance of the business.

2. Tax Liabilities: The error in the sales book will also impact the calculation of taxes owed by the business. Taxes, such as sales tax or value-added tax (VAT), are typically calculated based on the sales amount. As a result of the understatement, the business may end up underpaying its tax obligations, leading to potential penalties and fines.

3. Accounts Receivable: The error in the sales book will also affect the accuracy of the accounts receivable balance. Accounts receivable represents the amount of money owed to the business by its customers. Since the sales book understates the sales amount, the accounts receivable balance will also be lower than the actual amount owed by customers.

Correction of the Error:
To correct the error in the sales book, the business needs to make an adjusting entry to increase the sales amount by Rs. 90,000. This adjustment should be made in the general ledger, specifically in the sales account. The corresponding entry should be made in the accounts receivable account to reflect the increase in the amount owed by customers.

Once the adjusting entry is made, the financial statements should reflect the accurate sales amount, revenue, and accounts receivable balance. It is important to rectify such errors promptly to ensure the integrity and accuracy of the financial records and reporting.