CMA Foundation · Fundamentals of Financial and Cost Accounting · Financial Statements of Sole Proprietorship
Sunita's trial balance shows Salaries ₹1,20,000. Adjustment: salaries outstanding are ₹10,000 and salaries paid in advance are ₹4,000 for the next year. Salaries are already included in the trial balance at ₹1,20,000, which includes the ₹4,000 advance. What amount is charged to the Profit and Loss Account?
The charge to the Profit and Loss Account is ₹1,26,000. Outstanding salaries of ₹10,000 are added to the ₹1,20,000 paid, and the ₹4,000 paid in advance belongs to next year, so it is deducted. Only the current year's expense is charged.
- A₹1,26,000Correct
- B₹1,34,000
- C₹1,14,000
- D₹1,06,000
Explanation
Charge = 1,20,000 + 10,000 outstanding - 4,000 prepaid = 1,26,000. Adding both adjustments gives 1,34,000, which wrongly treats the prepaid amount as an additional expense.
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