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x drafts account for the year 31 oct 2005 reports a loss of 1486 . when he prepared the accounts buster didnot include the accrual of 1625 and prepayment of 834.
what is busters profit or loss for the year following the inclusion of the accrual and prepayment .sir we should do like add accrual and deduct prepayment so i gets loss of 695 .
but the answer given is 2277 which is done by adding prepayment and deducting accrual .
sir what is the correct answer with reason .
Thank youThe correct answer is the answer given!
You add the accrual to the expense and subtract the prepayment from the expense.
However adding the accrual to the expense increases the expense and therefore reduces the profit. Vice versa for the prepayment.so when we add accrual to the expense if it was profit it reduces the profit but here it is loss so it inccreases the loss and when we subtract prepaymet from the expense it will increase the profit but as its loss here it reduces the loss .
AM I CORRECT ?? 🙂Increasing profit is the same as reducing a loss (a loss is only a negative profit).
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