ACCA Applied Knowledge · Financial Accounting · Receivables and payables
Marlow Co has a customer, Teal Ltd, which is also a supplier. Teal's balance in the sales ledger is $9,500 debit and in the purchase ledger is $6,200 credit. The two balances are set off by contra. What is the journal entry?
Debit payables control and credit receivables control by $6,200, the lower of the two balances. This reduces what Marlow owes Teal and what Teal owes Marlow, leaving Teal owing a net $3,300, with no cash moving.
- ADebit receivables control $6,200; credit payables control $6,200
- BDebit payables control $6,200; credit receivables control $6,200Correct
- CDebit payables control $9,500; credit receivables control $9,500
- DDebit bank $3,300; credit receivables control $3,300
Explanation
A contra offsets the lower of the two balances, $6,200. Payables are reduced by a debit and receivables reduced by a credit. Option A reverses the entries, and option C uses the larger amount, which would exceed the payable owed.
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