Bruce is both a debtor and a creditor of Mayo Ltd. At the end of the period she owes Mayo Ltd $400 while Mayo Ltd owes her $1500. What is the correct journal entry to offset the amounts against each other?

Question

Quizplus · Accepted Answer

Since Bruce owes Mayo Ltd $400, this amount would be debited to creditors. On the other hand, Mayo Ltd owes Bruce $1500, so this amount would be credited to debtors. Therefore, the correct journal entry would be to debit the creditors account for $400 and credit the debtors account for $400. This would offset the amounts against each other, taking into account the net amount that Mayo Ltd owes to Bruce ($1500 - $400 = $1100). Option C is the only choice that reflects this approach.

Bruce Is Both a Debtor and a Creditor of Mayo