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4 Profit will decrease or loss will increase if an item is omitted to be posted to the credit side of a nominal account. With
4 Profit will decrease or loss will increase if an item is omitted to be posted to the credit side of a nominal account. With the rectification of the error, profit will increase or loss will decrease. For example, interest on debentures of Rs. 2,000, received is omitted to be posted to the credit side of the Interest on Debentures Account. This error will decrease profit or increase loss because interest on debentures received will not be transferred to the credit side of the Profit and Loss Account as an item of income. At the time of the rectification of the error, Interest on Debentures Account will be given a credit and, as a result, profit will increase or loss will decrease. 5 Due to increase or decrease in profit/loss by the errors in nominal accounts, the Capital Account will also, be increased or decreased. Thus, the errors in nominal accounts will also affect the Balance Sheet because the Capital Account is shown on the liability side of the Balance Sheet. So, an error in a nominal account will affect both the Profit and Loss Account and the Balance Sheet. 6 If there is an error in the personal accounts of the debtors or creditors of the business concern their respective accounts will be increased or decreased. This will have its effect on the Balance Sheet only because debtors and creditors are shown in the Balance Sheet as Assets and Liabilities respectively. Similarly, if an error is in a real account, such as Plant and Machinery Account, Cash Account, Land and Building Account, the Balance Sheet alone will be affected because assets are shown in the Balance Sheet only. r29 Illustration: The trial balance of a trader has agreed but the following errors are discovered after the preparation of the final accounts: i) Rs. 500 posted to the Depreciation Account as Depreciation on Plant and Machinery was not posted to the plant and Machinery Account 11) Return Outward Book is overcast by Rs. 10. Purchases Book is overcast by Rs. 4,000. iv) An amount of Rs. 1,000 received as dividend on shares has been posted to the debit of the Interest Account. v) Furniture was purchased from Rahim for Rs. 9,600 but the entry was passed for Rs. 6,900. vi) Rs. 1,200 received from Anil Kapoor in settlement of account, posted to the credit of the Sales Account vii) Outstanding interest on loan Rs. 500 omitted to be recorded. vin Rs. 600 paid for the purchase of office stationery was wrongly debited to the Purchases Account ix) Sales of Rs. 6,000 to Mushtaq omitted to be posted to his account. Rs. 200 paid for repairs were written as Rs. 20 in the Repairs Account. xi) Discount Received, Rs. 50, omitted to be posted to the Discount Received Account x Show the effect of these errors on the Final Accounts
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