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Nicky runs a sole trader business selling computers. On 12 January 20X7, Nicky employed a family member as an administrator for the business and took a computer from the store room for their use in the office.
What is the double entry for this transaction?
A. Dr Drawings Cr Cost of sales
B. Dr Non-current assets Cr Cost of sales
C. Dr Cost of sales Cr Drawings
D. Dr Cost of sales Cr Non-current assetsI think correct answer is A, can you explain me if some other answer is correct and why. Thank you
A is correct. I assume you do have answers in the same book in which you found the question, so please do let me know if that printed answers says anything different 🙂
Answer say it is B (Kaplan book)
Explanation: The computer does not qualify as inventory drawings as it is for the use of Nicky’s family member in their role as administrator to the business.
The computer is being transferred from inventory to non-current assets by debiting the non-current assets account. It is no longer part of cost of sales and is removed from cost of sales by a credit.
Our proffessor told us that sometimes Kaplan has wrong answers. what do you think?
The Kaplan answer is correct and I am afraid that it is me who was wrong – I read it too fast 🙁
If the family member had taken it home and used it as their own computer then it would indeed have been treated as drawings.
However that is not the case – it did not end up belonging to the family member but instead was being used as a computer for the business. If they had bought a new computer specially then it would have been treated as a non-current asset (i.e. Dr Asset Cr Cash). Here they took it from the inventory and so it is Dr Non-current asset Cr Cost of sales.
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