Question

Good costing Rs.10,000 given charity were not recorded. The error will result in :

• A. Is an error of Commission
• B. Will affect the Trial Balnce
• C. Will not affect the Net Profit
• D. None of these

Answer 1

The correct option is D None of these

When goods given as charity is not recorded in the books, this is known as error of omission. Error of omission is when a transaction is not recorded in the books at all, or recorded in journal but not posted in ledger accounts. Here both debit and credit aspect of the transaction is missing, thus is does not have any impact on the agreement of the trial balance.

When this transaction is not recorded in the books, it affects the net profit of the year. This is because, the amount of goods given as charity is deducted from the purchases account balance which is shown in the trading account. Increase in purchase account balance decreases the gross profit which is transferred to profit and loss account to calculate net profit which also decreases.