The Trial Balance shows Sundry Debtors amounting to 43,000, which includes 2,200 owed by 'H' for goods sent on approval. The cost price of these goods is 1,800. How should the accounts be adjusted to reflect this correctly?

Show Answers

Increase closing inventory by 2,200Reduce closing stock by 1,800 and subtract 2,200 from both debtors and salesAdd 1,800 to closing inventory and reduce debtors and sales by 2,200 eachSubtract 1,800 from debtors balanceNo adjustment required

Explanation

Since goods sent on approval are still owned by the company until accepted, the cost price (1,800) should be added back to closing stock. Meanwhile, the revenue (2,200) and related debtor amount must be removed because the sale is not finalized. Therefore, debtors and sales are reduced by 2,200 each, and 1,800 is added to closing stock.