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ACCA Applied Knowledge · Financial Accounting · General ledger accounts and journal entries

Orla Ltd's accounts clerk debited $6,000 of costs for extending a warehouse to the repairs expense account. The correct treatment is to capitalise it. Which journal corrects the error?

Debit property, plant and equipment $6,000 and credit repairs expense $6,000. This removes the wrongly expensed warehouse extension from profit and records it as an asset. No bank or suspense entry is needed because the cash payment was already recorded correctly.

  1. ADebit Repairs expense $6,000; Credit Property, plant and equipment $6,000
  2. BDebit Property, plant and equipment $6,000; Credit Repairs expense $6,000Correct
  3. CDebit Property, plant and equipment $6,000; Credit Suspense $6,000
  4. DDebit Repairs expense $6,000; Credit Bank $6,000

Explanation

The extension is capital expenditure. The expense was overstated, so credit repairs expense to remove it and debit property, plant and equipment to record the asset. The first option reverses the correction. No suspense or bank entry is needed as the original bank credit was correct.

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