PRC-1 · Chapter 8 · Question 60 of 100
A bad debt of Rs. 500 was written off by debiting 'Bad and Doubtful Debts Expense' but instead of crediting 'Receivables,' the accountant credited 'Sales.' What will be the impact of this error on the net profit?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Profit is overstated by Rs. 500
Explanation
By crediting Sales instead of Receivables, revenue was artificially increased by 500, leading to the net profit being overstated by 500.
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