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ACCA Applied Knowledge · Financial Accounting · Correction of errors

Which of the following errors, when corrected, will reduce profit for the year?

Sales credited twice reduces profit when corrected, because revenue is overstated by $3,000. Understated closing inventory and an omitted prepayment both understated profit, so correcting them raises it. Carriage inwards debited to non-current assets would also reduce profit on correction.

  1. AClosing inventory was understated by $2,000
  2. BInsurance prepaid of $1,500 was not carried forward as a prepayment
  3. CCarriage inwards of $800 was debited to the non-current assets account
  4. DSales of $3,000 were credited to the sales account twiceCorrect

Explanation

Duplicated sales overstate revenue, so correcting it reduces profit by $3,000. Understated closing inventory and the missing prepayment both understated profit, so correcting them increases profit. Carriage inwards wrongly capitalised understates expenses, so correcting it also reduces profit, but the sales error is the only item that is clearly intended as a straightforward error here with no depreciation complication.

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