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WAEC Financial Accounting 1991 (August) Question 8

Question 8

Purchase of Business

The price paid for the purchase of a business is

  1. A.debited to the Cash account and credited to the Vendor's account
  2. B.credited to the Cash account and debited to the Vendor's account
  3. C.credited to the Business Purchases account and Debited to the Assets account
  4. D.debited to the Business Purchase account and credited to the Assets account
  5. E.credited to the Cash account and debited to the Assets account.
Show the answer and explanation

Answer: B (credited to the Cash account and debited to the Vendor's account)

Explanation

Paying the vendor reduces cash (credit cash) and clears the amount owed to the vendor (debit vendor).