Question

Dev, Bhudev and Shamdev were partners in a firm sharing profits equally. On 31st March, 2024, their firm was dissolved. On this date the Bank Account showed a credit balance of ₹ 10,000 and there was a debit balance of ₹ 15,000 in the Cash Account. All payments were settled by cheque. Ravi, a creditor of ₹ 2,000 was not having any Bank Account, therefore he was paid in cash. Afterwards the Cash Account was closed by depositing the balance of cash into the bank. The Journal entry for closing Cash Account will be:

Options

• Debit Cash A/c by ₹ 10,000 and Credit Bank A/c by ₹ 10,000.

• Credit Cash A/c by ₹ 10,000 and Debit Bank A/c by ₹ 10,000.

• Debit Bank A/c by ₹ 13,000 and Credit Cash A/c by ₹ 13,000.

• Debit Cash A/c by ₹ 13,000 and Credit Bank A/c by ₹ 13,000.

Answer 1

Debit Bank A/c by ₹ 13,000 and Credit Cash A/c by ₹ 13,000.

Explanation:

When the firm dissolves, the Cash Account has an initial debit balance of ₹ 15,000. Out of this cash in hand, ₹ 2,000 is paid directly to the creditor, Ravi, which reduces the cash balance to ₹ 13,000. To completely close the Cash Account, this remaining balance of ₹ 13,000 is deposited into the Bank Account. According to the rules of accounting for assets, depositing cash increases the bank balance (Debit Bank A/c) and decreases the cash in hand to zero (Credit Cash A/c). Therefore, the correct final entry is to Debit Bank A/c by ₹ 13,000 and Credit Cash A/c by ₹ 13,000.