Ahmed runs a trading business in Karachi. During the year, he set off $800 owed to a supplier, Hassan, against $1,200 owed by Hassan as a customer. What is the correct journal entry to record this contra entry?

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Question

Ahmed runs a trading business in Karachi. During the year, he set off $800 owed to a supplier, Hassan, against $1,200 owed by Hassan as a customer. What is the correct journal entry to record this contra entry?

Accepted Answer

Debit Purchases ledger control $800, Credit Sales ledger control $800 — Award 1 mark for correct journal entry. A contra entry uses the lower of the two amounts ($800). Debit purchases ledger control (reduces liability) and credit sales ledger control (reduces asset). A is incorrect — debits and credits are reversed. C is incorrect — uses the difference, not the lower amount. D is incorrect — uses the higher amount.

Answer

Debit Sales ledger control $800, Credit Purchases ledger control $800

Answer

Debit Purchases ledger control $800, Credit Sales ledger control $800

Answer

Debit Sales ledger control $1,200, Credit Purchases ledger control $1,200

Answer

Debit Purchases ledger control $400, Credit Sales ledger control $400

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