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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Question

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

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