Accounting 9706 · AS & A Level · Preparation of financial statements

Preparation of financial statements — practice question

At 31 May 2020, the inventory figure for a limited company had been overstated by $20000. What effect did this mistake have on retained earnings?

  • Aretained earnings at 31 May 2020 overstated by $20000; retained earnings at 31 May 2021 no effect
  • Bretained earnings at 31 May 2020 overstated by $20000; retained earnings at 31 May 2021 understated by $20000
  • Cretained earnings at 31 May 2020 understated by $20000; retained earnings at 31 May 2021 no effect
  • Dretained earnings at 31 May 2020 understated by $20000; retained earnings at 31 May 2021 overstated by $20000

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