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45 Paul found a number of errors in the financial statements at the end of the
accounting period and put through the following adjustments:
• Credit sales of $15,000 completely omitted from the ledgers
• Property depreciation of $2,350 had been reflected in the income statement
but no adjustment had been put through accumulated depreciation
• Rent expenditure of $600 had been treated as Rates
• Rental income of $4,000 was received in advance and no adjustment had been
made
Before the adjustments above Paul’s profit for the period was $346, 464
What is the profit after the above adjustments?
A $344,114
B $347,064
C $337,814
D $357,464Opening profit:
346 464
add credit sales ( I assume it is sale on credit) 15 000
depreciation has been reflected – means manually adjusted and is already included in financial statement but as was not put through accumulated depreciation account you would have the wrong figure in balance sheet for properties – it would be overstated but you are not asked about balance sheet so you don’t do anything with this for profit calculation
rent is just wrongly allocated – it is in expenses so you don’t change profit but in real life you would need to make a journal to re-allocate it from one expense acc to the other
rental income in advance – it is income received in current year but relates to next financial year – it is not the current year income only money has been received – this should be removed from profit so deduct (4000)
So 346 464 + 15 000 – 4 000 = 357 464
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