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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Cycle

A firm's Purchases Book total for April is Rs 1,80,000, including goods of Rs 20,000 wrongly entered, which were actually purchased for cash and already recorded in the cash book. The Purchases Returns Book shows Rs 8,000. What is the correct amount of credit purchases for April, and what is net purchases chargeable if cash purchases total Rs 35,000 including the Rs 20,000?

Correct credit purchases are Rs 1,60,000 and net purchases are Rs 1,87,000. Removing the wrongly entered Rs 20,000 leaves Rs 1,60,000; adding total cash purchases of Rs 35,000 gives Rs 1,95,000; deducting returns of Rs 8,000 gives Rs 1,87,000.

  1. ACredit Rs 1,60,000; net purchases Rs 1,87,000Correct
  2. BCredit Rs 1,80,000; net purchases Rs 2,07,000
  3. CCredit Rs 1,60,000; net purchases Rs 2,07,000
  4. DCredit Rs 1,60,000; net purchases Rs 1,95,000

Explanation

Correct credit purchases = 1,80,000 - 20,000 = 1,60,000. Cash purchases are 35,000 including the 20,000 already in the cash book. Total purchases = 1,60,000 + 35,000 = 1,95,000, and less returns of 8,000 gives 1,87,000. Rs 1,95,000 forgets the returns, while Rs 2,07,000 uses the uncorrected Purchases Book and double counts the Rs 20,000.

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