Correcting Errors in Expenses and Purchases

Steps:

• Error 1: Motor vehicle ($200) was expensed instead of capitalized as an asset, overstating expenses and understating profit by$200; correction reduces expenses, increasing profit by $200.
• Error 2: Purchases overcast by $500 overstated costs, understating profit by$500; correction decreases purchases, increasing profit by $500.
• Combine effects: Total profit increase is $200 +$500 = $700.
• Ignore depreciation as specified, so no further adjustments.

Why D is correct:

• In accrual accounting, correcting overstated expenses and purchases directly increases net profit by the error amounts, per the profit formula (Revenue - Expenses = Profit).

Why the others are wrong:

• A: Ignores second error's larger impact.
• B: Reverses the direction; corrections increase, not decrease, profit.
• C: Accounts only for first error, omitting purchases adjustment.

Final answer: D