There are two statements marked as Assertion (A) and Reason (R). Mark your answer as per the options given below.
Assertion (A): The Bank account is debited when the money is received for debentures by a company.
Reason (R): Bank account is also debited when the extra money received by the company on debentures is refunded.
Answer & explanation
Correct answer: option 4
The correct answer is option 4- (A) is true, but (R) is false.
Assertion (A): The Bank account is debited when the money is received for debentures by a company. THIS IS TRUE. On receipt of the application money, the following journal entry is passed-
Bank A/c Dr.
To Debenture Application A/c
* Specifically, with the rule “debit what comes in and credit what goes out.” With a real account, when something comes into your business (e.g., an asset), debit the account. When something goes out of your business, credit the account.
Reason (R): Bank account is also debited when the extra money received by the company on debentures is refunded. THIS IS false. On refund of the excess application money, the following journal entry is passed-
Debenture Application A/c Dr.
To Bank A/c
With a real account, when something comes into your business (e.g., an asset), debit the account. When something goes out of your business, credit the account. So, bank account is credited at the time of refund.
So, assertion is true but reason is false.