Errors affecting profits

Once the errors have been corrected, the firm will need to reconsider if the net profit needs calculating again. There are no general rules we can infer from the type of error and whether profit is or is not affected.

Let us use the previous example and take each error in turn:

1. This error does not affect profits as it is only in a personal account which is a balance sheet item.
2. We have missed out an expense of £115, therefore profits will be lower as a result.
3. Discounts received has been undercast by £160 and this will need adding on to the profits.
4. Purchases have been undercast which is an expense, therefore profit will be lower as result.