PRC-1 · Chapter 4 · Question 19 of 100
An accrued income of Rs. 40,000 was mistakenly recorded in the books as unearned income of Rs. 40,000. What is the impact on the net profit for the year?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Profit is understated by Rs. 80,000
Explanation
Recording an accrued income (which increases profit by 40k) as unearned income (which reduces recognized income by 40k) creates a swing of double the amount. Thus, the profit is understated by Rs. 80,000.
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