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Dear Sir,
In BPP F7 books, there is an exercise of entry adjustment. The full question for entry adjustment in the exercises as follow:
“The balance of £4,000 on the sales returns account has inadvertently been omitted from the trial balance though correctly entered in the ledger account.”
And the answer of this question is
Dr Profit before tax: £4,000
Cr Suspense: £4,000(Suspense is an account given in the question)
I don’t understand this entry adjustment. Since as I understand the omission would result in an increase in profit before tax account (a Credit) instead of a Debit. Please tell me if I have made mistakes anywhere.
Thank you very much.
Best regards,
Hi,
Is this a FR/F7 style question? We very rarely see anything like this.
If the balance has been omitted then a debit balance has been omitted and so the suspense of 4,000 would have been recorded in the TB. We need to remove this by crediting it and then taking the other side to the sales return account, which effectively reduces the PBT figure.
Thanks
Dear Keymaster,
Thank you very much for your reply. I found this in the end of BPP book’s big exercises. It was a book quite old, since 2014, so it might not be up-to-date.
So if I understand your reply right, the Debit in PBT account is only to balance out the record made previously in suspense account. Or is there any other logic behind it?
Best regards,
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