Compensating errors leave profit unchanged Steps:

• Start with draft profit of $850, which includes uncorrected errors.
• Correct accrued wages error: add $250 expense, reducing profit to$600.
• Correct sales understatement: add $250 revenue (assuming matching amount for offset), increasing profit to$850.
• Correct prepaid rent error: record $400 asset on balance sheet with no profit impact, as current-year expense allocation is unaffected.
• Net adjustment: zero change.

Why B is correct:

• Revenue and expense errors offset exactly under accrual accounting principles, preserving draft profit.

Why the others are wrong:

• A: Subtracts all error amounts without offsets ($850 -$250 - $400 -$300 = -$100, close but ignores compensating effects).
• C: Applies partial net subtraction ($850 -$100), misapplying offsets.
• D: Adds net revenue/expense without full compensation ($850 +$50).

Final answer: B