The draft net profit is Rs. 290,000. Payment of office rent expense amounting to Rs. 120,000 was recorded as a credit entry in the cash book and also credited to rent income account. What is the impact on net profit to correct this specific error?

Correct answer: A) Net profit decreases by Rs. 240,000

Explanation

The rent was wrongly credited to income (falsely inflating profit by 120,000) instead of being debited as an expense (which should have reduced profit by 120,000). Correcting this removes the fake income and adds the true expense, decreasing net profit by 240,000.