PRC-1 · Chapter 5 · Question 31 of 100
An accountant completely forgot to record a bad debt write-off of Rs. 5,000 before preparing the final accounts. The business does not use an allowance account. What is the impact on the Net Profit?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Net profit is overstated by Rs. 5,000.
Explanation
Failing to write off a bad debt means the expense was not recorded. Lower recorded expenses artificially inflate (overstate) the net profit by Rs. 5,000.
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