Question

A creditor of rupees 9500 is settled by a final payment of rupees 9000 how will it affect the capital

Answer 1

Answer:

increase by 500 in capital a/c when profit transferred to capital

Explanation:

whenever a liability is settled by paying less amount , such entry create a gain and it is transferred to capital at every financial year end

proof

journal entry

creditor   dr  9500

 to cash                    9000

 to gain(capital a/c)    500

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