1. avatar says

    Hi John,

    I am just a bit confused about the fact you said that if closing inventory is lower, profit is lower. Where can I find the example for this? I thought is closing inventory is lower than profit is higher from the cost of sales equation (opening inv. + purchases – closing inv.)?

    Thank you for your help

  2. Profile photo of josy87 says

    Sir I don’t understand why your didn’t add 2000 to the profit as the goods still alison’s goods. I though as the bookkeeper considered a sale, he removed in stock and we should resend it in s and increase the profit.

    • Profile photo of John Moffat says

      If we pay $500 for electricity we should debit the expense account.

      Here it has obviously gone to the wrong account – that would not stop the trial balance balancing except that instead of debiting they have credited.

      So……we need to debit telephone 500 to remove it from that account.
      We also need to debit electricity 500 to make things correct.
      In total it means we need to adjust by 1000.

      • avatar says

        Hello sir.Thank you for this amazing lecture.
        However,am still not getting this part.I understood the what you explained about the $1000.But the $500 that we wrongly credited,did it affect our profit?
        I thought that our profit would decrease by $500 only because our expense is actually increasing by $500 only,the other $500 is just to correct the error.
        Because if initially itself we had correctly recorded the entry,wouldn’t have the expense been only $500?

      • Profile photo of John Moffat says

        Because the 500 has been credited to telephone, it would have made the telephone expense lower, which would have increased the profit.

        So we remove it from telephone – the expense is higher and the profit lower by 500.
        Then we charge it to electricity (debit) and that makes the electricity expense higher, and therefore the profit lower by another 500.

        So total affect on profit is 1,000.

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