Sundry debtors as per Trial Balance is 43,000 which includes 2,200 due from ‗H in respect of goods sent to him on approval basis, the cost price of which is 1,800. Rectification would involve:
Correct answer: C. Adding 1,800 to closing stock and deducting 2,200 each from debtors and sales
- A. Adding 2,200 to closing stock
- B. Deducting 1,800 from closing stock and deducting 2,200 each from debtors and sales
- C. Adding 1,800 to closing stock and deducting 2,200 each from debtors and sales
- D. Deducting 1,800 from debtors
Explanation
Goods sent on approval remain inventory until approval, so stock must increase by their cost of 1,800. The recorded debtor and sale are both overstated by 2,200 and must each be reduced by that amount.
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About Accounting Principles
Accounting principles explain the rules used to record, classify and report business transactions. Coverage includes the accounting equation, double-entry system, accrual and cash bases, matching and prudence concepts, consistency, going concern, business entity, and the difference between capital and revenue items.
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