ACCA Applied Knowledge · Financial Accounting · Bank reconciliations
Which one of the following is the correct double entry to record a standing order payment for $500 of annual subscription shown on the bank statement but not in the cash book?
Debit subscriptions expense and credit bank with $500. The standing order is a payment out of the bank account, so the cash book balance is reduced, and the cost is recognised as an expense because no payable had been recorded.
- ADebit subscriptions expense $500, credit bank $500Correct
- BDebit bank $500, credit subscriptions expense $500
- CDebit payables $500, credit bank $500
- DDebit subscriptions expense $500, credit cash in hand $500
Explanation
A payment reduces the bank balance, so bank is credited. The other side is the expense incurred, so subscriptions expense is debited. Reversing the entry would increase bank. Debiting payables would be right only if a liability had been recorded earlier.
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