A laptop worth Rs. 12,000 purchased for the daughter of a partner was debited to the general expenses account with Rs. 2,000. In the rectifying entry, the drawings account should be debited with:
Rs. 12,000
Understanding the Accounting Error and Rectifying Entry
This question deals with a common accounting error involving personal expenses of a partner being incorrectly recorded as business expenses. We need to understand the nature of the original transaction, the error made, and how to correct it using a rectifying journal entry.
Analyzing the Original Transaction
A laptop worth Rs. £12,000 was purchased for the daughter of a partner. According to accounting principles, any amount spent from the business on the personal needs of a partner or their family members is considered 'Drawings'. Drawings reduce the partner's capital in the business. Drawings are debited to the Drawings Account.
Identifying the Incorrect Entry Made
Instead of correctly recording this as Drawings of £12,000, the purchase was recorded as a debit to 'General Expenses Account' with an amount of only Rs. £2,000. This means:
- The wrong account (General Expenses instead of Drawings) was debited.
- The wrong amount (£2,000 instead of £12,000) was debited.
The incorrect journal entry likely looked something like this:
| Debit | Credit | Amount (Rs.) |
|---|---|---|
| General Expenses A/c | £2,000 | |
| Cash/Bank A/c | £2,000 |
Determining the Correct Entry
The correct journal entry for this transaction should have been:
| Debit | Credit | Amount (Rs.) |
|---|---|---|
| Drawings A/c | £12,000 | |
| Cash/Bank A/c | £12,000 |
Constructing the Rectifying Entry
To rectify the error, we need to adjust the accounts involved. The rectifying entry should achieve the following:
- Debit the account that should have been debited with the correct amount.
- Credit the account that was incorrectly debited to cancel the wrong debit.
- Adjust the Cash/Bank account for the difference in the amount credited.
Step-by-step rectification:
- Debit Drawings Account: The Drawings account should have been debited with £12,000. So, we debit Drawings Account with £12,000 in the rectifying entry.
- Credit General Expenses Account: The General Expenses account was incorrectly debited with £2,000. To cancel this incorrect debit, we must credit General Expenses Account with £2,000.
- Credit Cash/Bank Account: The incorrect entry credited Cash/Bank with £2,000. The correct entry should have credited Cash/Bank with £12,000. The difference (£12,000 - £2,000 = £10,000) needs to be credited to Cash/Bank in the rectifying entry to bring the total credit to £12,000.
Based on these adjustments, the rectifying journal entry is:
| Debit | Credit | Amount (Rs.) |
|---|---|---|
| Drawings A/c | £12,000 | |
| General Expenses A/c | £2,000 | |
| Cash/Bank A/c | £10,000 |
Let's verify: Total Debits = £12,000. Total Credits = £2,000 + £10,000 = £12,000. Debits equal Credits, so the entry is balanced.
Conclusion on the Rectifying Entry Debit to Drawings
In the rectifying entry, the Drawings account is debited with Rs. £12,000 to reflect the correct nature and amount of the personal expense.
Revision Table: Accounting Errors and Rectification
| Type of Error | Description | Impact | Rectification Principle |
|---|---|---|---|
| Error of Commission | Correct account, wrong amount or wrong side. | Affects ledger balances. | Reverse incorrect effect, record correct effect. |
| Error of Principle | Wrong classification of expense/income (e.g., capital vs revenue). | Affects financial statements. | Reverse incorrect entry's effect, record correct entry's effect. |
| Error of Omission | Transaction completely or partially not recorded. | Accounts/trial balance may or may not match. | Record the omitted entry or the omitted part. |
| Compensating Error | Errors cancel each other out. | Trial balance matches but accounts are wrong. | Rectify each error individually. |
Additional Information: Drawings and General Expenses
- Drawings: This account represents money or goods taken by the owner(s) of a business for personal use. It reduces the owner's equity or capital. For example, a partner paying their child's school fees directly from the business bank account is drawings.
- General Expenses: This account is used to record various minor day-to-day operating expenses of a business that do not fit into specific categories like rent, salaries, or utilities. Examples include postage, cleaning supplies, minor repairs, etc. Business expenses are recorded in the profit and loss account to determine the net profit or loss.
- Confusing Drawings with business expenses is an error of principle because it misclassifies a personal withdrawal as a business operating cost. This affects the calculation of profit and potentially the partners' capital accounts.
Important Questions from Miscellaneous
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A railway wagon (open at the top) of mass M1 is moving with speed v1 along a straight track. As a result of rain, after some time it gets partially filled with water so that the mass of the wagon becomes M2 and speed becomes v2. Taking the rain to be falling vertically and the water stationery inside the wagon, the relation between the two speeds v1 and v2 is :
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1. Distance between the longitudes becomes zero on North Pole and South Pole.
2. Distance between the longitudes is maximum on the Equator.
3. Number of longitudes is more than number of latitudes.
Which of the statements given above is/are correct?
One block of 2⋅0 kg mass is placed on top of another block of 3⋅0 kg mass. The coefficient of static friction between the two blocks is 0⋅2. The bottom block is pulled with a horizontal force F such that both the blocks move together without slipping. Taking acceleration due to gravity as 10 m/s2, the maximum value of the frictional force is :
