MGT101 Financial Accounting GDB Solution Fall 2012

“Financial Accounting-MGT101”

Concept to be Tested: Recording Journal Entries

Discussion Question

From the following journal entries, you are required to identify the mistake therein and also support youranswer with logical reason.

1.      Machinery sold for Rs. 10,000 has been recorded as:


Cash A/C                    10,000

Sales A/C                    10,000


2.      Furniture Showroom purchased furniture costing Rs. 8,000 recorded as:


Furniture A/C              8,000

Cash A/C                    8,000


Note: Your comments should be according to requirement and not be more than 300 words.


1. The first entry is wrong it should be

Cash A/C                    10,000

Machinery A/C                    10,000

Because it is an asset of the company. The company doesn’t deal with sales purchase of machineries. Machinery is the Tangible Fixed Asset of the business so accordingly any proceed from the sales of these assets should be recorded as disposal of assets instead of recording it as Revenue (Sales).

2. Second Entry is correct. Furniture is purchased and Cash is paid.

If the business of showroom is not specifically to deal with the sales and purchase of Furniture then it should be recorded as Tangible Fixed Asset as it has already been recorded.