Salary paid in cash during the current year was ?30,000; Outstanding salary at the end of previous year was ?2,000 and outstanding salary at the end of current year was ?3,000. Salary paid in advance during current year for next year was ?2,600. The amount debited to Income and Expenditure Account will be :
Explanation:
Let's break down the calculation:
- Salary paid in cash during the year = ?30,000
- Add: Outstanding salary at end of current year (because it relates to this year, unpaid) = ?3,000
- Less: Outstanding salary at beginning of the year (because it was already expensed last year but paid this year) = ?2,000
- Less: Salary paid in advance for next year (not related to this year) = ?2,600
So,
Amount to be debited to Income and Expenditure Account:
= 30,000 + 3,000 – 2,000 – 2,600
= ?28,400
• Option 1: ?33,600 (adds all items, but ignores advance paid)
• Option 2: ?26,400 (deducts both outstandings; wrong approach)
• Option 3: ?31,600 (adds outstandings, ignores advance)
• Option 4: ?28,400 (Correct as per accrual accounting)
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By: santosh