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Question
Rs. 2,400, being the prepaid portion of insurance, was brought forward from the previous year as a credit balance in the nominal account. Identify the amount of the trial balance difference which will be placed in a suspense account -
Rs. 2,400, being the prepaid portion of insurance, was brought forward from the previous year as a credit balance in the nominal account. Identify the amount of the trial balance difference which will be placed in a suspense account -
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Solution
The correct option is B Dr. 4,800
Prepaid expense is an asset and has a debit balance. When it is recorded as credit balance firstly the credit entry has to be cancelled to rectify the error and another entry has to be passed with the same amount to record original carry forward entry. So two times of the amount will be present in the suspense account. It means suspense A/c will be debited by 4,800
Prepaid expense is an asset and has a debit balance. When it is recorded as credit balance firstly the credit entry has to be cancelled to rectify the error and another entry has to be passed with the same amount to record original carry forward entry. So two times of the amount will be present in the suspense account. It means suspense A/c will be debited by 4,800
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