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CMA Foundation · Fundamentals of Financial and Cost Accounting · Journal and Ledger

Mehta & Co. purchased office furniture for Rs 40,000 and paid the amount by cheque. Which journal entry correctly records this transaction?

The correct entry is Furniture A/c debited and Bank A/c credited for Rs 40,000. Furniture is an asset coming into the business, so it is debited, while the bank balance falls, so it is credited. The Purchases account is only for goods bought for resale.

  1. AFurniture A/c Dr 40,000 to Bank A/c 40,000Correct
  2. BPurchases A/c Dr 40,000 to Bank A/c 40,000
  3. CBank A/c Dr 40,000 to Furniture A/c 40,000
  4. DFurniture A/c Dr 40,000 to Cash A/c 40,000

Explanation

Furniture is a real account for an asset that comes in, so it is debited. Bank is a real account for an asset that goes out, so it is credited. Purchases A/c is wrong because it is used only for goods meant for resale. Option C reverses the entry, and option D credits Cash although payment was by cheque.

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