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CSEET · Fundamentals of Accounting · Accounting Process

Rohan & Co. purchased office furniture for Rs 15,000 but debited the amount to the Purchases Account. Which statement correctly describes this error and its rectification?

It is an error of principle because a capital asset was treated as a revenue expense. It is rectified by debiting Furniture Account and crediting Purchases Account with Rs 15,000, which removes the wrong debit in Purchases and records the asset correctly.

  1. AError of principle; debit Furniture Account and credit Purchases Account by Rs 15,000Correct
  2. BError of omission; debit Furniture Account and credit Cash Account by Rs 15,000
  3. CCompensating error; no rectification is needed
  4. DError of commission; debit Purchases Account and credit Furniture Account by Rs 15,000

Explanation

Furniture is a capital asset, but it was booked as a revenue item (purchases). This is an error of principle. The correct entry is to debit Furniture and credit Purchases to remove the wrong debit. Option 3 reverses the entry and would double the wrong debit to Purchases.

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