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During its accounting year end to 29 February 20X5, Saturn Co agreed with Acme Co, who it
both purchased goods from, and sold goods to, on credit terms, to contra the maximum
possible amount of the balances due to each other. At the date of this agreement, Saturn Co
had a receivables ledger account balance for Acme Co of $685 and a payable ledger account
balance of $565.What accounting entries should Saturn Co make in its general ledger to record this
situation?Debit Credit
A Trade payables $685 Trade receivables $685
B Trade payables $565 Trade receivables $565
C Trade receivables $565 Trade payables $565
D Trade receivables $685 Trade payables $68Please do not simply type out a full question and expect to be provided with a full answer. You must have an answer in the same book in which you found the question and so you should ask about whatever it is in the answer that you are not clear about and then I will explain.
The correct answer is B.
You can find a full explanation of contra entries in my free lectures working through Chapter 16 of our free lecture notes. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
Although contra entries are examinable, the entry is no longer in the receivables and payables control accounts because control accounts have been removed from the syllabus for Paper FA.
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