Doubt regarding a journal entry

This query is : Resolved

Devendra (Querist)
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11 July 2010 I came across a journal entry

Mr X and Associates A/c Dr. 20000
To Mr.Y-Loan A/c 20000

Mr X and Associates is grouped under the head Sundry Creditors.
Mr Y-Loan A/c is grouped under the head Unsecured Loans.

and Mr. X and associates was showing an opening credit balance.

But after passing the above entry in 'Journal Entry' the ledger A/c of Mr. X and Associates A/c got closed.

Now my question is without the effect of cash or bank how come the ledger A/c (Mr. X and Associates) got closed?

Thank You
Regards
Devendra.K

CA SMR

CA SMR (Expert)
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11 July 2010 The amount payable to the Sundry Creditor Mr X & Associates got converted into unsecured loan by this entry.There should be suitable documentation e.g in the form of instruction from the creditor or agreement between both the parties involved, to effect such an entry.

Rahul Gupta

Rahul Gupta (Expert)
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11 July 2010 Agreed with Expert Sukanya.
Mr X. Account is converted in the form of Loan by Mr Y. You can bifurcate the two entries in terms of bank payment and receipt also, in such case the entries will be....

Bank/Cash DR. 20,000
To Mr.Y-Loan A/c 20000

Mr X and Associates A/c Dr. 20000
To Bank/cash A/c 20000

Th effect will be same, however, cash account has been introduced.

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