Question

Credit sales of Rs.5000 was wrongly credited to office equipment. On rectification of this error next year _______.

• A. gross profit will decrease by Rs.5,000
• B. gross profit will increase by Rs.5,000
• C. sales will increase by Rs.5,000
• D. sales will decrease by Rs.5,000

Answer 1

Answer: (B)

gross profit will increase by Rs.5,000

Sales has to be recorded in Trading account by giving a credit to sales account. $Rs.5000$ sales wrongly credited to office equipment account. It is an error of principle as revenue receipts is recorded as capital receipt.

In such situation gross profit of the current year understated by $Rs.5000$.

On rectification in subsequent year, gross profit will increase by $Rs.5000$.