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CMA Foundation · Fundamentals of Financial and Cost Accounting · Adjustment Entries and Rectification of Errors

Sharma & Co. started the year with accrued interest income of Rs 6,000 and income received in advance for interest of Rs 3,000. During the year, interest received in cash was Rs 48,000. At year end, accrued interest is Rs 9,000 and interest received in advance is Rs 5,000. What is the interest income credited to Profit and Loss?

Interest income is Rs 49,000. Start with cash of Rs 48,000, deduct opening accrued Rs 6,000, add closing accrued Rs 9,000, add opening advance Rs 3,000 that is now earned, and deduct closing advance Rs 5,000.

  1. ARs 48,000
  2. BRs 49,000Correct
  3. CRs 47,000
  4. DRs 51,000

Explanation

Income = cash 48,000 - opening accrued 6,000 + closing accrued 9,000 + opening advance 3,000 - closing advance 5,000 = Rs 49,000. Check: 48,000 + 3,000 = 51,000; 51,000 - 6,000 = 45,000... recompute stepwise: 48,000 - 6,000 = 42,000; +9,000 = 51,000; +3,000 = 54,000; -5,000 = Rs 49,000. Option Rs 51,000 ignores the advance receipts adjustments.

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