PRC-1 · Chapter 7 · Question 82 of 100
A business using a periodic inventory system suffered a loss of stock worth Rs. 100,000 due to fire. The insurance company agreed to reimburse 60% of the loss in cash. What is the correct double entry?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Debit Cash 60k; Debit Abnormal Loss 40k; Credit Purchases 100k
Explanation
Under a periodic system, the cost of lost goods is removed from the 'Purchases' account. Cash is debited for the 60k recovery, Abnormal Loss (P&L expense) is debited for the unrecovered 40k, and Purchases is credited for the full 100k.
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