Day: December 17, 2019

If a £500 salaries accrual was inadvertently treated as a prepayment, net profit would be . . .

Select ONE answer:

1. overstated by £500.
2. understated by £500.
3. overstated by £1,000.
4. 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

1. Not correct
2. Not correct
3. 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).
4. Not correct

 

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