Multiple choice

A sale of Rs. 20, 000 was wrongly entered in the purchase book. This will

  1. decrease the gross profit by Rs. 20, 000

  2. increase the gross profit by Rs. 20, 000

  3. increase the gross profit by Rs. 40, 000

  4. decrease the gross profit by Rs. 40, 000

Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When a sale of Rs. 20,000 is wrongly entered in the purchase book, it means sales are understated by Rs. 20,000 AND purchases are overstated by Rs. 20,000. The combined effect on gross profit is Rs. 40,000 decrease (Rs. 20,000 from reduced sales + Rs. 20,000 from increased purchases). Both errors pull the profit in the same downward direction.