Which of the following error is an error of principle
Correct answer: A. 5,000 incurred on installation of new plant debited to travelling expenses A/c
- A. 5,000 incurred on installation of new plant debited to travelling expenses A/c
- B. 5,000 received from Sham credited to Ram A/c
- C. 500 paid for wages debited to salary A/c
- D. 500 being purchase of raw material debited to purchase A/c ` 50
Explanation
Installation costs necessary to bring a new plant into working condition are capital expenditure and should be added to the plant account. Debiting them to travelling expenses wrongly changes the nature of the expenditure, making this an error of principle.
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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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