PRC-1 · Chapter 8 · Question 81 of 100
Zeta Traders discovered that third-party stock of Rs. 500,000 lying on their premises was wrongly included in their year-end inventory. They use a periodic inventory method. What is the correcting entry?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Debit Cost of Sales Rs. 500,000 & Credit Inventory Rs. 500,000
Explanation
Including third-party stock overstates closing inventory, which artificially reduces Cost of Sales. The correction credits Inventory (reducing it) and debits Cost of Sales (increasing the expense back to reality).
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