Mallam Gambo bought a freezer for his shop costing ₦10,500. In recording, he debited office expenses account and credited the bank account. What book-keepin...
Mallam Gambo bought a freezer for his shop costing ₦10,500. In recording, he debited office expenses account and credited the bank account. What book-keeping error has he committed?
Answer Details
The book-keeping error committed by Mallam Gambo is an error of principle. This is because he has debited the wrong account, i.e., office expenses account, instead of the correct account, which is the freezer account. This error violates the basic accounting principle of "matching," which requires that expenses should be matched with the revenues they generate. The purchase of the freezer is a capital expenditure and should be recorded as an asset in the balance sheet, not as an expense in the profit and loss statement. The correct entry should have been to debit the freezer account and credit the bank account.