A trader prepared a draft income statement which showed a profit for the year of $\$ 36000$. A check of the books revealed the following information. I. Drawings made by the owner of $\$ 900$ had been debited to the wages account. II. The provision for doubtful debts was increased by $\$ 20$ at the year-end. The income statement was charged with the total provision of $\$ 260$. III. The total of the discount allowed column in the cash book, $\$ 140$, for one month had not been debited to the discount allowed account. What was the correct profit for the year?
Explanation
The correct profit for the year is calculated by adjusting the initial profit of $36000 for the errors found in the books. The drawings made by the owner of $900 should be added back to the profit, the increase in provision for doubtful debts of $20 should be added to the provision of $260, and the discount allowed of $140 should be added to the profit. Therefore, the correct profit for the year is $36000 + $900 + $20 + $140 = $37220.
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