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CA Foundation · Accounting · Financial Statements of Not-for-Profit Organisations

A hospital society's Receipts and Payments Account shows salaries paid ₹6,00,000. Salaries outstanding were ₹40,000 at the beginning and ₹55,000 at the end of the year. Salaries prepaid at the end were ₹10,000. What amount is debited to the Income and Expenditure Account for salaries?

Salaries expense is ₹6,05,000. Begin with ₹6,00,000 paid, subtract ₹40,000 opening outstanding belonging to the earlier year, add ₹55,000 closing outstanding, and subtract ₹10,000 prepaid for the next year. The result is ₹6,05,000.

  1. A₹6,05,000Correct
  2. B₹5,95,000
  3. C₹6,25,000
  4. D₹6,15,000

Explanation

Expense = paid 6,00,000 − opening outstanding 40,000 + closing outstanding 55,000 − closing prepaid 10,000 = 6,05,000. Ignoring the prepaid amount would give ₹6,15,000, which is the key distractor.

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