E T B Best PGDM Institute in Delhi PGDM Course in Delhi MBA AGU Best PGDM College in Delhi NCR Best MBA Colleges in Bangalore

Question on rectification of errors

On scrutiny accountant found that
1) bad debt recovery of $500 was credited to debtors a/c wrongly
2) bank charges of $ 50 wrongly entered twice in bank book
3) purchase return of $100 was omitted to be entered in the books of a/c
What will the net effect on the profit after rectification?
Sir will you please tell me the answer for this question and how to derive it?
And give me idea to solve such problems easily sir

asked Dec 27, 2015 in Rectification of Errors by Sankari Dkshith B (99 points) 807 views

1 Answer

0 votes
Rectifying entries:

1. Sundry Debtors A/c                      Dr. 500

       To Bad Debts Recovered A/c                     500

2.  Bank A/c                                        Dr.   25

        To Bank Charges A/c                                     25

3.  Sundry Creditors A/c                  Dr. 100

        To Purchase Returns A/c                            100

     Any Change in Sundry Debtors A/c, Bank or Sundry Creditors A/c does not make any impact on the profit/loss of the firm.

     Any changes which occur in income or expenses account, do impact the profit/loss of the firm.  For example debts recovered is an income so will increase profits by $500.  Similarly decrease in bank charges will increase income by $25 and increase in Purchase Returns by $100 will increase the profits.  So net increase in profit will be $625 ($500+$125+$100).

     Only method to know profit or loss on account of rectification of errors is to post all the income and expense account to the P & L A/c and find out the net result.
answered Dec 27, 2015 by jbsclasses (3,971 points)
Thank you sir
My pleasure.