On reviewing the financial statements, the company's accountant discovers that a payment of £21,000 made to a supplier has been incorrectly recorded in the cash book and in other internal accounting records as £31,000. What will be the effect on the income statement (profit and loss account) and statement of financial position (balance sheet) when this error is rectified? a) Profit before tax will remain unchanged, asset of cash will decrease by £10,000 and trade payables (creditors) will decrease by £10,000 b) Profit before tax will decrease by £21,000 and trade payables (creditors) will increase by £21,000 c) Profit before tax will remain unchanged, asset of cash will increase by £10,000 and trade payables (creditors) will increase by £10,000 d) Profit before tax will increase by £31,000 and trade payables (creditors) will increase by £31,000

On reviewing the financial statements, the company's accountant discovers that a payment of £21,000 made to a supplier has been incorrectly recorded in the cash book and in other internal accounting records as £31,000. What will be the effect on the income statement (profit and loss account) and statement of financial position (balance sheet) when this error is rectified? a) Profit before tax will remain unchanged, asset of cash will decrease by £10,000 and trade payables (creditors) will decrease by £10,000 b) Profit before tax will decrease by £21,000 and trade payables (creditors) will increase by £21,000 c) Profit before tax will remain unchanged, asset of cash will increase by £10,000 and trade payables (creditors) will increase by £10,000 d) Profit before tax will increase by £31,000 and trade payables (creditors) will increase by £31,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Acquarelle Co’s Accounts Payable figure included a sum of Rs 60.2 million in respect of leaves which was wrongly computed, resulting in an overprovision of Rs 18.7 million. A sum of Rs 4.3 million due to a supplier which was included in the Accounts Payable where the accuracy of the figure could not be ascertained. Rs 16.6 million relating to Administrative Expenses was not included under accruals in the current financial year .Utilities bills amounting some Rs 4.5 million were wrongly accrued. The Statement of Cash Flow was not prepared in line with accounting standard: The figure of Rs 3.6 million relating to procurement of assets was not recorded. Increase in Inventories (Rs0.6 million), increase in Accounts Receivable (Rs 7.1 million) and decrease in Accounts Payable (Rs 18.5 million) were wrongly calculated. Movement in Short Term Deposits (Rs 4.5 million) was accounted for in both Working Capital Changes and Investing Activities. a)Briefly give your views on this situations…
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Acquarelle Co’s Accounts Payable figure included a sum of Rs 60.2 million in respect of leaves which was wrongly computed, resulting in an overprovision of Rs 18.7 million. A sum of Rs 4.3 million due to a supplier which was included in the Accounts Payable where the accuracy of the figure could not be ascertained. Rs 16.6 million relating to Administrative Expenses was not included under accruals in the current financial year .Utilities bills amounting some Rs 4.5 million were wrongly accrued. The Statement of Cash Flow was not prepared in line with accounting standard: The figure of Rs 3.6 million relating to procurement of assets was not recorded. Increase in Inventories (Rs0.6 million), increase in Accounts Receivable (Rs 7.1 million) and decrease in Accounts Payable (Rs 18.5 million) were wrongly calculated. Movement in Short Term Deposits (Rs 4.5 million) was accounted for in both Working Capital Changes and Investing Activities. Reproduce a standard audit report to give your…
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