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ACCA Applied Knowledge · Financial Accounting · Accrued expenses (accruals), prepaid expenses (prepayments), accrued income and deferred income

Orla Co's draft profit before tax for the year is $48,000. It then discovers that an accrual of $1,500 for audit fees was omitted and that $900 of interest income earned but not yet received was not recorded. What is the corrected profit before tax?

Corrected profit before tax is $47,400. The omitted audit fee accrual reduces profit by $1,500, while the interest earned but not received adds $900 as accrued income. Net effect is a $600 decrease from $48,000.

  1. A$47,400Correct
  2. B$46,500
  3. C$49,500
  4. D$48,600

Explanation

The omitted accrual increases expenses: 48,000 - 1,500 = 46,500. Accrued income increases profit: 46,500 + 900 = $47,400. $46,500 ignores accrued income; $48,600 adds both wrongly in opposite directions.

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