Test: Journal Entries - 2 - Commerce MCQ

Profit earned and further capital introduced is added in capital A/c and losses is less in capital A/c. It will change capital A/c of proprietor. Thus option (d) any of the above is the right answer.

The debt that was written off as bad and subsequently collected by the proprietor in his personal capacity, but kept by him instead of being brought into the business, should be treated as a personal transaction. Since the amount was recovered personally and not through the business, it would be considered a drawing.

The correct accounting treatment:

• Debit the Drawings Account (since the proprietor is taking money out of the business).
• Credit the Bad Debts Recovered Account (to recognize that the bad debt has been recovered, but the benefit has been taken personally by the proprietor).

So, the correct answer is:

3. Debit – Drawings A/c & Credit Bad debts Recovered A/c

Let's analyze the transaction step by step:

1. X purchased land for Rs. 10,00,000.

   • This increases the assets (land) by Rs. 10,00,000.

2. He gave a cheque of Rs. 2,00,000.

   • This reduces the assets (cash/bank) by Rs. 2,00,000.

3. He accepts a bill of Rs. 8,00,000 due after 60 days.

   • This increases the liabilities (bills payable) by Rs. 8,00,000.

Now let's summarize the net effect on the assets and liabilities:

• Total assets increased by Rs. 10,00,000 (land) - Rs. 2,00,000 (cash) = Rs. 8,00,000.
• Total liabilities increased by Rs. 8,00,000.

Thus, the correct option is:

3. Total assets increased by Rs. 8,00,000 & total liabilities increased by Rs. 8,00,000

In the case of a debt becoming bad and doubtful, the amount is typically credited to the Debtors A/c.

Here’s how it works:

• Debtors A/c: This account is credited to remove the amount of the bad debt from the books. It reflects the reduction in the amount receivable from debtors.
• Bad Debts A/c: This account is debited to recognize the expense associated with the bad debt.
• Creditors A/c and Capital A/c: These accounts are not affected by bad debts.

So, the correct answer is Debtors A/c.

• The membership fees that is received from the members is a revenue item and it is to be shown as revenue.

• Revenue receipts: This is the money received by a business organisation as a result of its normal business operations. In this way, revenue receipts affect the profit or loss of a business.

Debiting a Sale of Goods to Ram for Cash to Cash Account:

• When a sale of goods is made to Ram for cash, it means that cash is being received in exchange for the goods sold.


• The cash received in this transaction will increase the cash balance of the business.


• Therefore, the transaction should be recorded by debiting the Cash Account.


• Debiting the Cash Account will reflect the increase in cash balance resulting from the sale.


• It is important to record transactions accurately to maintain the integrity of the accounting records.

The financial statement that represents the accounting equation
Assets=Liabilities+Owner’s Equity is:

3. Balance Sheet

The balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It lists the company's assets, liabilities, and owner's equity (or shareholder's equity for corporations) and shows how these three categories are related through the fundamental accounting equation: assets equal liabilities plus owner's equity. Therefore, the balance sheet directly represents the accounting equation.

When a debt becomes bad and doubtful the following entry is passed:
Bad Debts A/c Dr.
To Debtors A/c
( Being bad debts written off)