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Question
Closing stock was overstated by Rs9,000 being casting error in the schedule of inventory. If this error located after preparation of final account then which of the following rectification entry is correct?
Closing stock was overstated by Rs9,000 being casting error in the schedule of inventory. If this error located after preparation of final account then which of the following rectification entry is correct?
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Solution
The correct option is D Profit & Loss Adj. A/c Dr. 9,000
To Stock A/c 9,000
As closing stock was overstated that means the profit of the company is also overstated this is because, when closing stock is overstated the cost of goods sold reduced thereby increasing profit (SALES - COGS). Hence, to rectify the mistake, the rectifying entry will be:-Profit and loss Adj A/c ......dr 9,000 To Stock A/c 9,000
To Stock A/c 9,000
As closing stock was overstated that means the profit of the company is also overstated this is because, when closing stock is overstated the cost of goods sold reduced thereby increasing profit (SALES - COGS). Hence, to rectify the mistake, the rectifying entry will be:-
Profit and loss Adj A/c ......dr 9,000
To Stock A/c 9,000
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