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A firm purchased a machine for Rs 50,000 and debited the amount to Purchases Account. What is the rectification entry?

Debit Machinery Account and credit Purchases Account with Rs 50,000. Buying a machine is capital expenditure wrongly treated as a revenue item, which is an error of principle. The entry capitalises the asset and cancels the wrong debit to Purchases, without any suspense account.

  1. ADebit Purchases Account Rs 50,000; Credit Machinery Account Rs 50,000
  2. BDebit Machinery Account Rs 50,000; Credit Purchases Account Rs 50,000Correct
  3. CDebit Machinery Account Rs 50,000; Credit Suspense Account Rs 50,000
  4. DDebit Machinery Account Rs 50,000; Credit Cash Account Rs 50,000

Explanation

The machine is a capital asset but was wrongly debited to Purchases, an error of principle. Machinery must be debited to capitalise the asset and Purchases credited to remove the wrong debit. The trial balance is unaffected, so no Suspense Account is used.

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