Statements of revised profit and correcting control accounts

Statement of revised profit

Start with the draft profit, then add or subtract the effect of each error on profit only. Ask: does correcting it increase income or reduce expenses (add), or reduce income or increase expenses (subtract)?

Errors that affect only the statement of financial position (e.g. a receivable posted to the wrong customer) have no effect on profit.

Tricky items

• Closing inventory overvalued: cost of sales too low, so profit too high: subtract.
• Capital expenditure treated as revenue: add back the expense, then subtract any depreciation now due.
• Income item posted as an expense (discount received debited to Discount allowed): expenses too high by £150 and income too low by £150, so add £300.
• Purchases or sales omitted: correct their full effect.

Correcting a control account

When the control account balance and the list of individual balances disagree, sort each error into control account only, list only, or both:

• Day book totals and totals from the cash book affect the control account (and the general ledger).
• A single customer's posting or a listing mistake affects the list of balances.

Worked example

Use the statement above to explain the adjustment for the computer.

1. Office expenses were overstated by £900, so add £900.
2. The computer is a non-current asset depreciated at 25% straight line: 25% x 900 = £225 depreciation is now an expense, so subtract £225.
3. Overall effect on profit = +675.

Answer: Revised profit £34,575.

Check yourself

1. Draft profit is £28,400. Errors found: discount allowed of £240 not posted; purchases day book undercast by £300; rent received overstated by £90; machine repairs of £800 debited to Machinery. Calculate the revised profit (ignore depreciation).
   Show answer

   £26970. 28,400 - 240 - 300 - 90 - 800 = 26,970.

2. Draft profit is £19,750. Closing inventory was undervalued by £650 and an accrual for electricity of £320 was omitted. Calculate the revised profit.
   Show answer

   £20080. Inventory undervalued: add 650. Accrual omitted: subtract 320. Revised 20,080.

3. Carriage inwards of £260 was recorded as carriage outwards. By how much is gross profit overstated? (Profit for the year is unaffected.)
   Show answer

   £260. Carriage inwards belongs in cost of sales. Recording it as carriage outwards (an expense below gross profit) made cost of sales £260 too low, so gross profit is £260 too high; profit for the year is unchanged because both are expenses.

4. A trade receivables ledger control account shows £24,370. The sales day book was undercast by £200 and discount allowed of £90 was not entered in the control account. Find the corrected control account balance.
   Show answer

   £24480. 24,370 + 200 - 90 = 24,480.

5. Which error affects the list of trade receivables balances but NOT the control account?
   • The sales day book was overcast
   • A customer's balance was copied onto the list incorrectly
   • Discount allowed was not posted from the cash book total
   • Sales returns day book total was posted twice
   Show answer

   A customer's balance was copied onto the list incorrectly. Only the listing is wrong; all totals posted to the control account are correct.

6. Which error has NO effect on profit?
   • Closing inventory was overvalued
   • Wages owing were not accrued
   • A sale on credit was omitted
   • A cheque from a customer was credited to the wrong customer's account
   Show answer

   A cheque from a customer was credited to the wrong customer's account. Both accounts involved are trade receivables, so only assets are misallocated.

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Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting specification (issue 2), Unit 1 and Appendices 6 to 8

Last updated 8 November 2026. Spotted a mistake? Tell us.