Repairs to a tram costing $560 were debited to the tram fleet account rather than to repairs, although the credit to bank was made correctly. The books of S...
Question 1 Report
Repairs to a tram costing $560 were debited to the tram fleet account rather than to repairs, although the credit to bank was made correctly. The books of Southline Trams have not yet been closed for the year. Which journal entry corrects this?
Answer Details
Repairs keep a tram in its present condition, so the $560 is revenue expenditure and belongs in the repairs account. It was debited instead to the tram fleet account, a non-current asset, which is an error of principle. The credit to bank was right, so only the debit needs moving.
The correcting journal entry is debit repairs $560 and credit tram fleet $560. The credit removes the amount from the asset account where it does not belong, and the debit puts it into the expense account where it does.
Debiting the tram fleet and crediting repairs would push the error further in the wrong direction. Debiting repairs and crediting bank would record the payment a second time and make the bank balance wrong. Doubling to $1,120 is only needed for a complete reversal, and here nothing was placed on the wrong side, merely in the wrong account.
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