Bisi Traders purchased a new generator for office use worth \text{₦}350,000 on credit from… — JAMB UTME

Bisi Traders purchased a new generator for office use worth $\text{₦}350,000$ on credit from Mikano Motors. Which of the following entries correctly records this transaction in the General Journal?

Debit Office Equipment account $\text{₦}350,000$ ; Credit Mikano Motors account $\text{₦}350,000$ Answer
B
Debit Purchases account $\text{₦}350,000$ ; Credit Mikano Motors account $\text{₦}350,000$
C
Debit Mikano Motors account $\text{₦}350,000$ ; Credit Office Equipment account $\text{₦}350,000$
D
Debit Capital account $\text{₦}350,000$ ; Credit Mikano Motors account $\text{₦}350,000$

Answer

Debit Office Equipment account

\text{₦}350,000

; Credit Mikano Motors account

\text{₦}350,000

Purchasing a non-current asset on credit is a special transaction recorded in the General Journal. The Office Equipment account is debited to reflect the increase in business assets, and Mikano Motors account is credited to acknowledge the creditor liability.

Step-by-Step Solution

Determine the appropriate book of original entry for the transaction

The credit purchase of a fixed asset (generator/office equipment) must be recorded in the General Journal (Journal Proper).

The Purchases Day Book is strictly meant for goods bought for resale on credit. Non-current assets bought on credit are recorded in the General Journal.

Apply double-entry rules for the credit purchase of a non-current asset

Debit Office Equipment account

\text{₦}350,000

and Credit Mikano Motors account

\text{₦}350,000

Debit the account that receives the asset (increase in assets) and credit the account of the supplier who gives value on credit (increase in liability).

Key Concept

Recording credit purchases of non-current assets in the General Journal

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