Rama calculated his net profit for the year as RM75,886 but is not sure how to treat the RM90 (debit) balance on the suspense account. Control accounts are not maintained. On reviewing Rama’s records, it is noted that:
i. a cash sale for RM900 was recorded in the cash book, but no other entry was made.
ii. the purchase daybook was undercast by RM900.
iii. a cheque paid to a supplier was correctly entered in the cash book as RM540, but RM450 was posted to the supplier’s account.
iv. a cheque received from a customer for RM11,700 was accepted in full settlement of a balance of RM11,790. No entries were made for the discount.
v. travel expenses include payment of RM405 for Rama’s holiday.
Required:
a. Indicate whether or not Rama’s calculation of net profit was affected by each of the errors, and calculate his corrected net profit for the year.
b. Indicate which of the errors are an example of:
• error of omission. (1 mark)
• arithmetical error. (1 mark)
• Error of transposition. (1 mark)
• Error of principle. (1 mark)