Question

A trader purchased a motor vehicle for his business using a cheque from his personal bank account.

How was this recorded in the books of the business?

Answer 1

Answer:

A cheque payment is recorded in the cash book when the cheque is despatched. The bank only records such a cheque when it is paid by the bank, which may be several days later. Items such as interest may appear on the bank statement but are not recorded in the cash book as the business is unaware that they have arisen

Answer 2

Answer:

Account to be debited: Motor Vehicle

Account to be credited: Capital

Explanation:

Notice how the question says 'using a cheque from his personal bank account'

Since the business and the owner are different entities, bank will not be credited; as the motor vehicle is provided as capital from the owner himself.