Bank Reconciliation Statement Test - 9

when Machinery is purchased our asset i.e Machinery is increasing so according to modern approach Machinery a/c should be debited.

When goods are sold on credit the purchaser becomes our debtor and it is an asset which is increasing so it should be debited. Thus in above ques Ram Lal's Account is debited.

Drawings account is the personal account of the proprietor. this account is maintained for a year only to keep rack of total withdrawals made by the proprietor during the particular year. So, when proprietor withdraws cash from business for personal use Drawings account is debited.

Amount written off as bad debts when received should be credited to bad debts recovered account because once the amount is written off bad debt it will be deleted from the books of accounts and when the some amount is recovered from it it is profit and will be credited to bad debts recovered account.

Life insurance premium is paid on the life of the proprietor. and when he/she dies the benefit will be received by the family and not business. So it is trated as drawings by the business when it is paid from the business.

Charity is the expenses though may be repeated or not repeated in future. so it will classified under nominal account.

bad Debts which are written off earlier means their name has been deducted from the debtors list and they do not have any balance in our account. So, when this bad debts pay some amount in future it is as good as profit so we credit it to bad debts recovered account.

Prepaid means paid in advance , so prepaid expenses are expenses which are paid in advance. Prepaid expenses will give us benefit in future so it becomes our assets.

Compound entry means entries which involve more than two accounts. so the above answer is correct.

As outstanding expenses need to be paid in future, though they are current expenses, so it becomes liability of the business to pay the expenses in future. outstanding means due but not paid i.e. which is to be paid in future.