Accounting for IGCSE & O level - Accounting Procedures (Section 11 - No. 24)
What is the impact on the profit and owner's equity if a capital receipt is incorrectly recorded as a revenue receipt?
Profit is overstated, owner's equity is overstated.
Profit is overstated, owner's equity is understated.
Profit is understated, owner's equity is overstated.
Profit is understated, owner's equity is understated.
Explanation
Incorrectly classifying a capital receipt as revenue causes profit and the owner's equity to be inflated for that period.
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