Accounting · Subsidiary Books and Final Accounts
An entity maintains multiple subsidiary books to manage its high volume of credit transactions. During a statutory audit, it is discovered that a purchase of office furniture worth 50,000 rupees on credit from a vendor was recorded in the Purchase Book instead of the Journal Proper. How does this procedural error affect the final accounts of the entity?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The total of the Trial Balance will not agree because the debit and credit aspects are unequal.
- 2The Gross Profit will be understated because the furniture purchase is incorrectly treated as a purchase of trade goods.✓
- 3The Net Profit will be overstated because furniture is a non-operating expense.
- 4The error will have no impact on the Profit and Loss account as both are recorded in subsidiary books.
Correct answer
The Gross Profit will be understated because the furniture purchase is incorrectly treated as a purchase of trade goods.
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