Question

Good returned to X for Rs 10,000 passed through the Sales Return Book .This error will result in :-

• A. Increase in gross profit
• B. Decrease in gross profit
• C. No effect on gross profit
• D. Either (a) or (b)

Answer 1

The correct option is B Decrease in gross profit

Option B is correct.

When goods are returned by the firm, it is purchase return and is deducted from the purchases account in trading account. When purchase return is recorded in the sales return book , the balance of sales return is deducted from the sales account balance.

For calculating the gross profit, the total of debit side (purchases + direct expenses) is deducted from the total of credit side (net sales + closing stock).

When sales return is deducted from the sales account balance, the credit side balance of the trading account decreases which decreases the gross profit.