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The purchases day book of Arbroath has been undercast by $500, and the sales day book
has been overcast by $700. Arbroath maintains payables and receivables ledger control
accounts as part of the double-entry bookkeeping system.The effect of correcting these errors will be to:
A Make adjustments to the ledger balances of the individual customers and suppliers,
with no effect on profit
B Make adjustments to the ledger balances of the individual customers and suppliers,
with a decrease in profit of $1,200
C Make adjustments to the control accounts, with no effect on profit
D Make adjustments to the control accounts, with a decrease in profit of $1,200
ANS D
(KAPLAN EXAM KIT )
Can you please tell me why profit is decrease by $1,200?
thank you in advanceIf the sales day book has been over added then sales are recorded higher than they should be.
If the purchase day book is under added then purchases are recorded lower than the should be.We correct by reducing sales which means lower profit, and by increasing purchases which again means lower profit.
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thanks.
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