Analyzing a Cash Transaction?
Ramesh pays Rs. 24000 to his friend to settle his outstanding loan of Rs. 20000, and also pays Rs. 4000 for food bills. His friend, in return, gifts him a laptop worth Rs. 6000. Record the transaction in the books of Ramesh and explain the journal entry.
1 Answer
📌 CONCEPT: Analyzing a cash transaction involves recording the different components of the transaction separately, including the settlement of the outstanding loan, payment for food bills, and receipt of a gift in the form of a laptop.
📐 RULE / FORMULA: When recording a cash transaction, we follow the principle of 'cash received' and 'cash paid' separately, and also value the gift received at its market value.
💡 WORKED EXAMPLE: Ramesh's friend gifts him a laptop worth Rs. 6000. The journal entry to record this transaction would be: Debit: Laptop (Asset) = Rs. 6000 Credit: Gift Received (Income) = Rs. 6000
⚠️ COMMON MISTAKE: Students often forget to record the gift received at its market value, which can lead to incorrect valuation of assets and income.
06 Jul 26
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