A Cheque Received From Mr. A, A Debtor, For Rs. 4000 Was Directly Received By The Proprietor Who Deposited It Into His Personal Bank Account. Pass Rectify Journal Entry

Here, we record the Rectification Entry to get the correct results before the preparation of Trial Balance.

When the cheque / check received by proprietor / sole owner from Mr. A (Accounts Receivable / Sundry Debtor) of Rs. 4000 and deposited into business' bank account, then from the business points of view, we record the following correct entry as shown below:

Correct Entry

             Bank a/c  4000

                           Mr. A a/c  4000

                                                                (Cash Received From Mr. A And Deposited Into Bank)

But, when the proprietor directly received the cash from the customer, Mr. A, but deposited into his personal bank account, then from the point view of business, it is the wrong accounting treatment as the business is a Separate Legal Entity according to Business Entity Concept, so the following entry is recorded which is wrong one here as the cash received from A is an inflow for the business and then deposited into the business bank account but the proprietor wrongly deposited his own personal account and credited his personal bank account instead of debtor account i.e., Mr. A. So the wrong entry is shown below:

(i) Wrong Entry:

                                                  Bank a/c 4000

                                                                        Owner's Personal Bank  a/c 4000

               (Cash Received  And Deposited Wrongly Into Owner's Personal Bank Account)

(ii) Rectification Entry:

                                      Owner's Personal Bank a/c  4000

                                                                                 Mr. A a/c  4000

(Cash Received From Mr. A By Sole Proprietor Who Wrongly Deposited It Into His Personal Bank Account, Now Rectified)

If we combine (i) and (ii) entries, then we get the correct entry.

So, we can say that, the entry to record is to debit bank account, as the cash is coming into the business bank account, and a credit to Mr. A (accounts receivable / debtor account) as the business received cash from its customer, Mr. A, so debtor account is decreasing and as a result, we credit it.