Question

Create a scenario and provide the journal entry to support it. (Example an increase in asset and decrease in liability)

Answer 1

A) IN CASE OF INCREASE IN ASSET:-

a) Mr A Purchased an asset on 1-04-2019 amounting to $10,000 by cheque

Journal entry for the above transaction is

Asset A/c Dr $ 10,000

to Bank A/c $ 10,000

on 31-3-2020 for suppose the asset value in creased to $ 15,000 then Journal Entry for the above transaction is

Asset A/c Dr $ 5000

to Revaluation Gain $ 5000

and the revaluation gain is transferred to profit and loss account so the entry is

Revaluation Gain A/c Dr $ 5000

to Profit & Loss A/c $ 5000

B) In case of decrease in Liability:-

Mr A Purchased goods from Mr B amounting to $ 20,000 on credit basis.

Journal Entry for the above transaction is

Purchases A/c Dr $ 20,000

to Mr B A/c $ 20,000

and then Personal account of Mr B is transferred to Creditors the entry is

Mr B A/c Dr $ 20,000

to Creditors A/c $ 20,000

On 31-3-2020 Mr B Waived off the amount of $ 5000, then the entry is

Creditors A/c Dr $ 5000

to Profit & Loss A/c $ 5000

hence on 31-3-2020 closing balance of creditors is $ 15,000

Balance in profit and loss is $ 5000.