Practicing Success
Reliance ltd. purchased a construction company in Saudi Arabia, where will this entry be recorded in the balance of payment account? |
It will be recorded on the debit side It will be recorded on the credit side It will either be recorded on the debit side or credit side The transaction will not be recorded |
It will be recorded on the debit side |
Whether a transaction is recorded on the debit side or credit side is determined on the basis of flow of foreign exchange. If due to any transaction, there is inflow of foreign exchange the transaction will be recorded on the credit side whereas, when there is outflow of the foreign exchange it will be recorded on the debit side. Here, in order to purchase the construction company, Reliance ltd. must have done an outflow of foreign exchange, thus it will be recorded on the debit side of the account. |