Question

What will be the journal entry of machinery purchaaed rs.1000 paid installation expenses rs.2500?

Answer 1

installation expense is not a revenue expenditure, it is a capital expenditure.. so it is not recorded separately but capitalised to the asset....

In this case 5000 is paid in cash on installation of machinery...

so these expenses are added to the cost of machinery..(take 1000 as the cost of machinery ; mode of payment is cash)

so 1000 + 2500 = 3500..is recorded in the books of accounting ..

The transaction affects two accounts... Machinery a/c and Cash a/c (they are real accounts ; all assets and Liabilities come under Real account;cash and machinery are assets).

The Golden rule of accounting for Real account-

Debit What comes in, credit what goes out

Here machinery is comingin,so it should be debited..Cash is going out,so it should be credited...

The Journal Entry will be ..

Machinery a/c Dr 3500

To Cash a/c. 3500

(Being machinery bought for cash)

Answer 2

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