Cash
Charity
Purchases
Sales
Answer is Right!
Answer is Wrong!
The correct answer is C. Purchases.
When goods are given as charity, the cost of the goods is deducted from the purchases account. This is because the company is no longer able to use the goods for its own purposes, and so it must recognize a loss on the donation. The loss is recorded as a decrease in the purchases account.
The other options are incorrect for the following reasons:
- Cash is not credited when goods are given as charity. The cash account is only credited when cash is received, not when goods are donated.
- Charity is not a valid account in the general ledger. Accounts are typically named after the type of asset, liability, equity, revenue, or expense that they represent. In this case, the account would be named “Donations” or “Charitable Contributions.”
- Sales is not credited when goods are given as charity. Sales is only credited when goods are sold, not when they are donated.
I hope this helps! Let me know if you have any other questions.