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A cash refund of $50 given to a customer had been credited to purchases
Sir for this the correction entry given is:
Dr. Sales
Dr. Purchase
Dr.Suspense
Sir the doubt i am having is that the correct entry should have been:
Dr. Sales
Cr. Cash
But they credited it to Purchase. I am not able to understand why they assumed that the cash entry is correctly done. I mean we also can assume that instead of crediting the cash a/c the Purchase a/c is credited and the correction entry can then be:
Dr. Purchase
Cr. Cash
Kindly explainIf a cash refund is given to a customer then the correct entry should be to Cr Cash and Dr Sales.
Given that no mention is made of the cash entry, then you must assume always that entry was correct.
It is therefore just the entries in sales and in purchases that need correcting.
I know it is a cash refund.
Therefore they have paid out cash and they must have credited cash because it has not mentioned there being an error in the cash account.
The error is that they have credited purchases when they should have debited sales, and so that it what needs correcting.
This is exactly the sort of wording to expect in the real exam.
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