ACCA Applied Knowledge · Financial Accounting · Correction of errors
Closing inventory was overstated by $6,000 in the draft accounts, and a purchase invoice of $2,500 was omitted from both purchases and payables. Draft profit was $48,000. What is the corrected profit?
Corrected profit is $39,500. Overstated closing inventory must be reduced, cutting profit by $6,000, and the omitted purchase of $2,500 increases cost of sales, cutting profit further. $48,000 less $6,000 less $2,500 equals $39,500.
- A$39,500Correct
- B$42,000
- C$45,500
- D$36,500
Explanation
Overstated closing inventory reduces profit by $6,000, giving $42,000. Omitting the purchase understated purchases, so profit falls by a further $2,500, giving $39,500. Option B ignores the omitted purchase; option D wrongly subtracts $6,000 twice... in effect treats both as larger deductions.
Did you get it right without looking?
One question tells you little. A timed set on Correction of errors shows your real accuracy, how long you take and where you lose marks.
More Correction of errors questions
- Draft profit for the year ended 31 December was $84,000. Three errors were then found: (1) a purchase of office equipment costing $6,000 was…
- A credit sale of $4,500 to customer Hale was correctly recorded in the sales account but was debited to the account of customer Hall by mist…
- A company bought office furniture for $1,200 on credit. The purchase was debited to the purchases account and credited to the payables contr…
- A business paid $450 for repairs to a machine and debited the amount to the machinery cost account. Which journal entry corrects this error?
- Which one of the following errors would cause the trial balance totals to differ?
- A payment of $900 for rent was correctly credited to the bank account but was not recorded anywhere else. A suspense account was opened to b…