PRC-1 · Chapter 4 · Question 35 of 100
An accrued consulting income of Rs. 25,000 was mistakenly recorded by 'Nexus Consulting' as unearned income of Rs. 25,000. What is the mathematical impact of this error on the net profit for the year?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Profit is understated by Rs. 50,000
Explanation
Recording accrued income increases profit by 25k. Recording it incorrectly as unearned income decreases recognized revenue by 25k. The total swing between the correct treatment and the incorrect treatment is an understatement of 50k.
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