If a £500 salaries accrual was inadvertently treated as a prepayment, net profit would be . . .
Select ONE answer:
- overstated by £500.
- understated by £500.
- overstated by £1,000.
- understated by £1,000.
Show your workings to arrive at your answer, and explain and justify your reasons:
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This multiple-choice question is suitable for Accounting KS5 classes.
The answer is 3
- Not correct
- Not correct
- Correct – For example, if, before any accrual or prepayment adjustments were made, net profit was £2,000 then, by accruing £500 in respect of wages, net profit would be £1,500 whereas by recording a prepayment of £500 in respect of wages net profit would be £2,500 — a difference of £1,000 (overstated).
- Not correct
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