Journal Entries - 3 - Commerce Free MCQ Test with solutions

• The proprietor withdrawing goods for personal use does not involve selling them.
• This transaction reduces the business assets (inventory) but is not a sale.
• Instead, it is recorded as a drawing since it represents the owner's personal use of business resources.
• Therefore, the correct account to credit is the Drawing A/c, reflecting the withdrawal of goods.

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)

Recovery of bad debts written off previously will be credited to profit and loss A/c because it is an income. 

To calculate the required provision for doubtful debts as of 31.3.09:

Given:

• Provision for bad debts as on 1.4.08 = Rs. 1,000
• During the year 2008-09, there were no bad debts.
• Debtors as on 31.3.09 = Rs. 90,000
• Provision for bad debts required @ 1%

Step-by-step calculation:

1. Calculate the required provision for doubtful debts as on 31.3.09: Provision required = 1% of Debtors as on 31.3.09 = 1% of Rs. 90,000 = Rs. 900

2. Determine the adjustment needed in the provision account:

   • Opening balance of Provision for bad debts (1.4.08) = Rs. 1,000
   • Required provision as on 31.3.09 = Rs. 900
   • Adjustment required = Rs. 900 - Rs. 1,000 = Rs. -100 (a decrease in provision)

Journal entry to adjust Provision for Doubtful Debts on 31.3.09:

The provision is being reduced, so we credit Provision for Doubtful Debts.

Option 2 correctly represents this adjustment:

Provision for Doubtful debts Dr. 100 To P&L A/c 100

This entry reflects the decrease in the provision for bad debts from the opening balance to the required amount as of the end of the period. Therefore, Option 2 is the correct journal entry to pass on 31.3.09.

• Total Assets = Capital + Liabilities
• Here, Capital = Rs. 75,000
• Liabilities = Rs. 25,000
• Total Assets = Rs. 75,000 + Rs. 25,000 = Rs. 1,00,000

• 1. Rs. 1,00,000

Assets are classified as Current Assets and Fixed Assets.
Fixed Assets:
Office Furniture & Equipment
Freehold Land & Building
Plant & Machinery
Current Assets:
Stock of Raw Material

purchases account
Good taken by the proprietor for domestic account should be credited to purchases account.

Cash comes in → Debit (Real A/c: Debit what comes in).
Capital is owner’s investment → Credit (Personal A/c: Credit the giver).

Purchases → Debit (expense & losses).
Cash goes out → Credit (Real A/c: Credit what goes out).

Rent is an expense → Debit.
Payment through bank → Bank decreases → Credit.

Cash comes in → Debit.
Commission is an income → Credit (Nominal A/c: Credit all incomes & gains).

Mohan (Debtor) → Debit (Personal A/c: Debit the receiver).
Sales → Credit (Nominal A/c: Credit all incomes & gains).

Correct Answe- Option c

explanation:

• a) Cash Account – Real account (asset).
• b) Investment Account – Real account (asset).
• d) Outstanding Rent Account – Real account (liability, as it represents an obligation that carries forward).
• c) Purchases Account – Nominal account (expense account, closed at the end of the accounting period).

Salary is an expense → Debit.
Cash goes out → Credit.