In the accounts of ABC Ltd, which of the following double-entries is the correct way to record that goods have been purchased from XYZ Ltd and paid for immediately in cash?
Select ONE answer:
- Account to Debit Sales / Account to Credit ABC Ltd
- Account to Debit Returns Inwards / Account to Credit XYZ Ltd
- Account to Debit Purchases / Account to Credit Cash
- Account to Debit XYZ Ltd / Account to Credit Returns Inwards
Show your workings to arrive at your answer, and explain and justify your reasons:
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This multiple choice question is suitable for Accounting KS5 classes.
The answer is 3 – Entries in the purchase account are always made on the debit side. Having paid cash to XYZ Ltd, ABC Ltd has now less cash on hand. This reduction in this asset has to be recorded as a credit entry in the cash account.
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