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

Kiran Enterprises had Rs 15,000 of goods stolen, covered by an insurance claim admitted for Rs 10,000 by the insurer. Rs 3,000 of goods were also distributed as free samples. Which compound journal entry correctly records these events?

Debit Insurance Claim 10,000, Loss by Theft 5,000 and Advertisement 3,000, and credit Purchases 18,000. The admitted claim is a receivable, the uncovered theft is a loss, and free samples are a business expense, not drawings.

  1. AInsurance Claim A/c Dr 10,000, Loss by Theft A/c Dr 5,000, Advertisement A/c Dr 3,000 to Purchases A/c 18,000Correct
  2. BInsurance Claim A/c Dr 10,000, Drawings A/c Dr 8,000 to Purchases A/c 18,000
  3. CLoss by Theft A/c Dr 15,000, Advertisement A/c Dr 3,000 to Purchases A/c 18,000
  4. DInsurance Claim A/c Dr 10,000, Loss by Theft A/c Dr 5,000, Drawings A/c Dr 3,000 to Purchases A/c 18,000

Explanation

Goods leaving the business reduce Purchases by 15,000 + 3,000 = 18,000 (credit). The claim is a receivable of 10,000 (debit), the uninsured balance 5,000 is a loss, and free samples are an advertisement expense of 3,000. Debits 10,000 + 5,000 + 3,000 = 18,000 reconcile; samples are not drawings.

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