Ignoring a Transaction - Correct Approach?
Rohan owns a bakery and uses his own vehicle for business trips. On a visit to a nearby town, he purchases stationery worth ₹4,000 for the bakery. His vehicle's fuel consumption during this trip is ₹1,100 and the remaining fuel is used for personal purposes. Ignoring the cost of fuel used for personal purposes, by what method would Rohan record the transaction for his bakery's stationery purchase?
1 Answer
📌 CONCEPT: Ignoring a transaction involves not recording a transaction that is related to a business activity, but does not provide any benefit or does not relate to the business in any way.
📐 RULE / FORMULA: In the given scenario, since the fuel consumption for personal purposes is ignored, only the fuel consumed for the business trip (₹1,100) is directly related to the business activity of purchasing stationery for the bakery.
💡 WORKED EXAMPLE: Rohan purchases stationery worth ₹4,000 for the bakery. He also spends ₹1,100 on fuel for the business trip. The remaining ₹900 fuel is used for personal purposes, which is ignored. The journal entry for this transaction would be: Debit - Stationery (₹4,000), Debit - Fuel (₹1,100), Credit - Cash (₹5,100).
⚠️ COMMON MISTAKE: Students might forget to ignore the personal fuel consumption and debit the total fuel cost (₹1,100 + ₹900 = ₹2,000) to the fuel account, resulting in incorrect accounting of business expenses.
11 Oct 26
🔗 More from Recording of Transactions - II
Practice this chapter
Get AI-generated board exam questions, track your mastery, and identify weak spots.
Start Free →