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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › 19 preparing basic financial statements BPP practice book19.1 pg 88
Sir can you please explaint the task 4 for me.
I can’t understand the answer of the book. why irrecoverable debts is DR but depreciation adjustment and inventory adjustment are CR. they are sort of expences for me.
Depreciation is indeed an expense. However task 4 is referring to the adjustments needed as a result of task 1 and task 2.
From task 1, the inventory was valued more than it should have been. So the value is reduced, which reduces the profit and therefore reduces the retained earnings – so debit retained earnings.
From task 2, the depreciation charge was too high and so needs reducing. Lower depreciation means more profit and therefore more refined earnings – so credit retained earnings.
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