Question

How does an over casting of purchase day book affect the cost of sales and profit?

• A. Cost of sales is decreased while profit is increased.
• B. Cost of sales is increased while profit is decreased.
• C. Both cost of sales and profit are increased.
• D. Cost of sales is increased, gross profit is decreased, but net profit remains unaffected.

Answer 1

Answer: (B)

Cost of sales is increased while profit is decreased.

All credit purchase of goods are recorded in the purchase journal while cash purchase are recorded in cash book.

Overcasting of purchase day book will mean that it has been totalled more or debited more which leads to increased cost of sales and profit is decreased.