Commercial Applications
A charitable organization has recently sold old office furniture and purchased new sports equipment. In the Receipts and Payments Account, where would these transactions appear, and what impact would they have on the final balance?
- Sale of furniture appears on the debit side; purchase of sports equipment appears on the credit side, reducing the final balance.
- Sale of furniture appears on the credit side; purchase of sports equipment appears on the debit side, increasing the final balance.
- Both transactions appear on the debit side, reducing the final balance.
- Both transactions appear on the credit side, increasing the final balance.
Accounting
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Answer
Sale of furniture appears on the debit side; purchase of sports equipment appears on the credit side, reducing the final balance.
Reason — Receipts and Payments Account follows the rule of real account — debit what comes in and credit what goes out. Sale of furniture brings cash into the organisation, so it is recorded on the debit (receipts) side. Purchase of sports equipment involves an outflow of cash, so it is recorded on the credit (payments) side. Therefore, the payment for sports equipment reduces the closing cash/bank balance.
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