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Effect of prepayment on net profit

Forums › FIA Forums › FA2 Maintaining Financial Records Forums › Effect of prepayment on net profit

  • This topic has 3 replies, 1 voice, and was last updated 2 years ago by jermy01.
Viewing 4 posts - 1 through 4 (of 4 total)
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    Posts
  • March 13, 2016 at 7:05 am #306127
    Gwen Henry
    Member
    • Topics: 12
    • Replies: 19
    • ☆

    Q. After completing his final accounts, Kevin found that he has understated a prepayment.

    How are Kevin’s net profit and capital affected by the correction of error?

    Net Profit Capital
    A. Increased Increased
    B. Increased Decreased
    C. Decreased Increased
    D. Decreased Decreased

    March 13, 2016 at 8:52 am #306144
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10197
    • ☆☆☆☆☆

    A prepayment says that some of the payment is in respect of the next year. Therefore that would increase this year’s profits.

    If you make more profit capital must be higher (ie think of the prepayment as an asset).

    Answer A is correct.

    March 13, 2016 at 2:22 pm #306180
    Gwen Henry
    Member
    • Topics: 12
    • Replies: 19
    • ☆

    Thank you.

    November 23, 2020 at 1:30 pm #596150
    jermy01
    Participant
    • Topics: 49
    • Replies: 29
    • ☆☆

    its help a lot thanks

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