ICAEW AF · Chapter 6 · Question 5 of 9
A business both buys from and sells to Fenwick Ltd. It agrees to set off the £1,250 Fenwick owes it against the £3,400 it owes Fenwick. What double entry records the contra?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Debit Payables control £1,250, Credit Receivables control £1,250
Explanation
A contra sets off the smaller balance against the larger one. The amount owed to the supplier falls by £1,250 (debit payables control) and the amount owed by Fenwick as a customer falls by £1,250 (credit receivables control). The business still owes Fenwick £3,400 - £1,250 = £2,150. No cash changes hands.
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