hi guys, i kinda need help with this double entry question
basically Im suppose to identify which account to be debited and which account to be credited..
1) Bought motor vehicle on credit from Peter
so shouldn't we credit 'trade payable' and debit 'peter' ?
im kinda confused with this..because if we purchase on credit, that means we havent paid yet, so we must open up the trade payable account right?
the answer is Debit motor vehicle and Credit peter.
2) sold goods on credit from Johnny
Same thing with this question.. shouldn't we debit the receivables acc , and credit the sales acc?
im actually kinda confused with this.. because i know that when you purchase or sell something on credit, you will have to open up a trade receivables/trade payable acc, because its on credit right?
and if you purchase/sell something on cash or cheque, than you just double entry normally
so let say: bought office furniture for cash
you would just credit the cash account, and debit office furniture account..
i dont know , but all this question which involves credit purchase/sold, i get wrong, i think my understandings is abit off...can someone pls help me out here.
And another type is on sales return and purchase return.
let say: return to peter some of the goods just bought
so in this case, which account would debit, and credit?
and one last thing, is discount receive and discount allowed..
im confused with this actually.. can you guys please explain to me
i just need one clear explanation on all this, and i should be okay..
i just started CAT or.. foundation in accountancy (because it just changed )
please help me out guys.. id really appreatiate it
1) The answer is correct, because trade payable is only used when purchases is done on credit. Purchases meaning you will resell these items for revenue.
The question is on the assumption that the business does not sell motor vehicle as part of their business. It is merely a capital expenditure. Motor vehicle is thus an asset.
Your answer is correct only if the business sells motor vehicle.
2) I think you get the "purchase with credit" all wrong. Trade payable and receivable is used only for business activities, ie. purchases and revenue.
Other purchases done by credit will be allocated to their respective accounts (Peter, John, etc.)
Brings back the time when I taught my friend the art of "double entry". Why don't you PM me your email address and maybe we can chat on MSN to help you with your studies if I'm free.