During January, Meera Limited Makes Credit Purchases of Goods for Resale

question 5

Multiple Choice

During January, Meera Limited makes credit purchases of goods for resale at a net cost of £42,000. Meera Limited's suppliers charge 20% VAT on the net cost of purchases. What is the correct double entry to record these credit purchases of goods for resale?

• A) Debit purchases £42,000, Debit VAT £8,400, Credit trade payables control account £50,400.
• B) Debit trade payables control account £50,400, Credit purchases £42,000, Credit VAT £8,400.
• C) Debit purchases £42,000, Debit VAT £8,400, Credit cash £50,400.
• D) Debit purchases £35,000, Debit VAT £7,000, Credit trade payables control account £42,000.

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Definitions:

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, giving insight into its financial position.

Statement of Cash Flows

A financial document that provides a summary of the amount of cash and cash equivalents entering and leaving a company, showing how the company raises and spends money.

Profit and Loss Statement

A financial document summarizing the revenues, costs, and expenses incurred during a specific period, typically a fiscal quarter or year.

Income Statement

A financial document that reports a company’s revenues, expenses, and profits over a specific period.