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John received a cheque for $950 from his insurance company in settlement of a claim for repairs to a van. The bookkeeper recorded the cheque correctly in the cash day book, but did not complete the double entry. The total of the trial balance did not agree and a suspense account was opened to record the difference.
What journal entry is required to eliminate the balance on the suspense account?A) Debit Suspense Credit Insurance
Being correction of an error of omissionB) Debit Insurance Credit Suspense
Being correction of an error omissionC) Debit Suspense Credit Van repairs
Being correction of an error of omissionD) Debit Van repairs Credit Suspense
Being correction of an error of omissionWhy answer is “C” not “A”?
We Debit Insurance Claim and Credit Expense, if we have insurance of that expense.
Like if loss of inventory but insurance claimed so Dr Insurance Claim and Cr P/L (COGS).
So if we get insurance back so it should be credited and Suspense Account would be debited.
Please help me with this.It was a claim to pay for repairs and therefore the money received from the insurance reduces the total repairs expense in the SOPL.
Therefore the entry should have been debit cash, credit repairs.
They have debited cash but have not credited repairs. Therefore the correcting entry is to credit repairs and debit suspense account.
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