If a promoter pays a lawyer ₦5,000 for services rendered in preparing a Memorandum of Incorporation, the journal entry is to debit?

Assessment: JAMB UTME - Principles of Accounts - 1999 Subject: Financial Accounting

Question 1 Report

If a promoter pays a lawyer ₦5,000 for services rendered in preparing a Memorandum of Incorporation, the journal entry is to debit?
Answer Details
The journal entry for the transaction would be to debit "Preliminary expenses" account and credit "Cash" account. This is because the payment made to the lawyer for the services rendered in preparing a Memorandum of Incorporation is considered as a preliminary expense, which is an expense incurred before the incorporation of the company. As a result, it is necessary to record it separately in the books of account and amortize it over a period of time after the incorporation of the company. Therefore, the "Preliminary expenses" account is debited to record the expense, and "Cash" account is credited as the payment was made in cash.
Read lesson note on Single Entry And Incomplete Records (WAEC)
Read lesson note on The Accounting Equation And Double Entry Principle (WAEC)
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