Question

Profit and Loss Adjustment account is used ________________ .

• A. to rectify all the errors in the year of occurrence of errors
• B. to rectify all the errors involving real accounts in the subsequent year
• C. to rectify all the errors involving accounts in the subsequent years so as not to affect the profit and loss
• D. None of these

Answer 1

The correct option is C to rectify all the errors involving accounts in the subsequent years so as not to affect the profit and loss

Sometimes even after the preparation of trial balance, some errors remain undetected. Without the notice of such errors the profit and loss account and the balance sheet is prepared, the final accounts. Such errors may be disiclosed after the prepartion of final accounts, thus profit and loss adjustment account is prepared to rectify such errors in the subsequent accounting period without affecting the older profit and loss account.