A sales invoice for $3,450 was recorded in Susan’s general ledger as follows:
Dr sales $3,540
Cr Trade receivables $3,540
If the errors are not corrected before the final accounts are drafted , how will Susan’s net profit be affected?
Plz solve this problem with working…
Sales are Undercast by $6,990 ($3,450+$3,540).
A) A wrong debit entry of $3,540 has decreased the Balance by $3,450.
B) Omission of a sale of $3,450 has decreased the Balance by $3,540. (Its still not recorded properly, so its still not in records)
We know that, An increase in Sales increases the Net Profit. Similarly a decrease in Sales decreases the Net Profit.
Sales is a Revenue Account, hence a Credit entry will increase it while a Debit entry will decrease the balance. So, whenever a sale occurs, we make a Credit entry in sales account.
As both of the above entries have decreased the sales, Hence the Net Profit is also decreased or Undercast. The amount by which Net Profit is Undercast is $6,990.
This is how the Net Profit of Susan is effected.
Hope it helped you.
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