PRC-1 · Chapter 8 · Question 58 of 100
A bad debt of Rs. 500 was written off by debiting 'Bad and Doubtful Debts Expense' but wrongly credited to 'Payables' instead of 'Receivables'. What is the impact of this error?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Liabilities are overstated
Explanation
By wrongly crediting 'Payables' (a liability) instead of reducing 'Receivables' (an asset), the liabilities are artificially inflated (overstated), and assets remain overstated.
More Correction of Errors MCQs
- Q60A bad debt of Rs. 500 was written off by debiting 'Bad and Doubtful Debts Expense' but instead of crediting 'Receivables,' the accountant…
- Q61Closing inventory includes an item valued at cost of Rs. 10,000. The net realizable value of this item is Rs. 8,000. The entity uses a…
- Q62Closing inventory includes an item valued at cost of Rs. 12,000. The net realizable value of this item is Rs. 14,000. The entity uses a…
- Q63Adeel Limited (AL) uses the perpetual inventory method. For which of the following transactions does AL need to Debit Cost of Sales and…
- Q64A company's unadjusted profit is Rs. 630,000. It was discovered that a machine bought for Rs. 48,000 on 1 July 2025 was recorded as Rs…