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Difficulty: MediumLedger Classification and Double Entry Rules

A sole trader acquired a new delivery vehicle on credit from Auto-Drive Motors for business operations. Which double-entry posting correctly records this transaction, and how is the account to be credited classified in the ledger?

  1. Debit Delivery Vehicle Account and Credit Auto-Drive Motors Account; the credited account is classified as a personal accountAnswer
  2. B
    Debit Purchases Account and Credit Auto-Drive Motors Account; the credited account is classified as a nominal account
  3. C
    Debit Auto-Drive Motors Account and Credit Delivery Vehicle Account; the credited account is classified as a real account
  4. D
    Debit Delivery Vehicle Account and Credit Discount Received Account; the credited account is classified as a nominal account

Answer

Debit Delivery Vehicle Account and Credit Auto-Drive Motors Account; the credited account is classified as a personal account.
The delivery vehicle is a tangible non-current asset (real account) coming into the business, so its account must be debited. Auto-Drive Motors is a trade creditor (personal account) giving credit to the business, so its account must be credited.

Step-by-Step Solution

1
Identify the two ledger accounts involved in the credit purchase of the fixed asset.
The Delivery Vehicle Account (non-current asset) and Auto-Drive Motors Account (creditor/supplier).
Acquiring a business asset on credit increases asset value and creates an outstanding liability to the vendor.
2
Apply double-entry posting rules to each account.
Debit Delivery Vehicle Account (increase in asset) and Credit Auto-Drive Motors Account (giver of value/liability).
Real accounts receive debits for incoming assets, and personal accounts receive credits for trade creditors.
3
Classify the credited ledger account.
Auto-Drive Motors Account is a personal account.
Personal accounts represent individuals, firms, or suppliers with whom the business conducts transactions on credit.

Key Concept

Classification of ledger accounts (Personal, Real, Nominal) and application of double-entry rules.
Estimated Time:1m 15s
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Topics

Ledger Classification and Double Entry Rules

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