IGCSE Accounting Paper-1: Specimen Questions with Answers 226 - 227 of 338

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Question 226


Write in Short

Short Answer▾

State and type error which is not revealed by the trial balance and explain how with an example. (Marks 2)


  • Compensating Error: When the effect of one error (excess debit or credit) compensates (cancels out) the effect of the other, such errors are known as compensating error and since these cancel out the excess of debits or credits, it is not revealed by the trial balance. For Ex- Goods worth $ 4000 purchased from Amaan were posted to Armaan A/c with $ 400. Similarly, goods worth $ 400 purchased from Farhan were posted to Faizan՚s A/c with $ 4000.
  • In this case the excess of credit ($ 3600) by the first error is compensated (canceled out) by the excess of debit ($ 3600) by the second error. Consequently, the Trial balance will still tally.

Question 227



What is ‘gross profit’ ?


Choice (4)


The difference between sales and cost of sales


The bank balance of business after sales


The excess of sales revenue over cost of goods sold


The difference between cash sales and direct expenses




Gross Profit is the excess of sales revenue over the cost of goods sold by the business. Cost of Goods sold already includes the direct expenses.

  • The difference between sales and cost of sales is lesser than gross profit as cost of sales includes other expenses such as selling & market expenses besides the cost of goods sold.
  • Cash sales as well as credit sales need to be considered while computing gross profit.
  • The bank balance has nothing to do with gross profit as it is based on accrual accounting.

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