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CMA Foundation · Fundamentals of Financial and Cost Accounting · Financial Statements of Sole Proprietorship

Salaries paid during the year were Rs 1,20,000. Salaries outstanding at the beginning were Rs 10,000 and at the end Rs 15,000. What amount is debited to Profit and Loss Account for salaries?

The salaries expense is Rs 1,25,000. Cash paid of Rs 1,20,000 is reduced by last year's outstanding Rs 10,000 and increased by this year's outstanding Rs 15,000, because only the current year's salaries are charged.

  1. ARs 1,15,000
  2. BRs 1,25,000Correct
  3. CRs 1,30,000
  4. DRs 1,45,000

Explanation

Expense for the year = paid - opening outstanding + closing outstanding = 1,20,000 - 10,000 + 15,000 = 1,25,000. Option 1 reverses the sign of the net change in outstanding, taking 1,20,000 - 15,000 + 10,000.

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