Journal Entry for Receipt of Cheque
When a cheque is received in full settlement of a debt, it is essential to record the transaction accurately in the journal. Here’s how to make the journal entry for receiving a cheque of RS 1700 from Mr. Shakya.
Journal Entry
- Date: [Insert the date of transaction]
- Particulars:
- Debit: Cash/Bank Account RS 1700
- Credit: Debtors Account (Mr. Shakya) RS 1700
This entry reflects that the company has received cash (or an equivalent amount in the bank) and has settled the outstanding debt from Mr. Shakya.
Explanation of the Entry
- Debit: Cash/Bank Account
- When the cheque is received, it increases the cash or bank balance. This is an asset for the business, so it is recorded on the debit side.
- Credit: Debtors Account (Mr. Shakya)
- Since the amount owed by Mr. Shakya is now settled, the debtor's account is reduced. This is a liability that decreases, so it is recorded on the credit side.
Summary of the Transaction
- The journal entry effectively shows that the business has received payment.
- It eliminates the receivable from Mr. Shakya’s account.
- It maintains the integrity of the accounting equation, ensuring that assets and liabilities are accurately reflected.
In conclusion, recording this transaction correctly is crucial for maintaining accurate financial statements, which is a key aspect of accounting and financial management.