PRC-1 · Chapter 3 · Question 48 of 100
'Global Supplies' is both a customer and a supplier to 'Urban Retailers'. 'Urban' owes 'Global' Rs. 45,000 for inventory, while 'Global' owes 'Urban' Rs. 15,000 for consulting services. They agree to a contra settlement. At what amount will the journal entry for this contra settlement be recorded?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Rs. 15,000
Explanation
A contra settlement offsets mutual debts. It is recorded at the amount of the smaller balance (Rs. 15,000). The entry will debit Trade Payables and credit Trade Receivables for Rs. 15,000, leaving a net payable of Rs. 30,000.
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