Question

Closing stock was overstated by Rs$9,000$ 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?

• A. Stock A/c Dr. $9,000$
  To Suspense A/c $9,000$
• B. Suspense A/c Dr. $9,000$
  To Stock A/c $9,000$
• C. Stock A/c Dr. $9,000$
  To Profit & Loss Adj.A/c $9,000$
• D. Profit & Loss Adj. A/c Dr. $9,000$
  To Stock A/c $9,000$

Answer 1

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