Whenever Debentures are redeemed, in the journal entry for the same We never directly debit % Debentures A/c and credit Bank A/c
Rather we use an intermediary account (Debentureholders A/c) which is first debited and Bank is credited while in the next entry
% Debentures are debited while Debentureholders A/c is credited
Why do we use this intermediary A/c (Debentureholders A/c)????
Cant we pass the direct (net) entry????
Dear Student,
The purpose of using "Debenture holders" A/c is to show that what amount is actually due to be paid to the debenture holders on redemption of debentures on a particular date and then the Bank entry shows what is actually paid; The due date & payment date may differs and thus it is advisable to use the Debenture holders" A/c; Also, many a times there may be situation when all are not paid ; some are paid and some are converted into preference/equity shareholders;
Passing direct entry is not preferable but if the date for both entries is same and also the amount a single entry would be no issue;
Regards,
The purpose of using "Debenture holders" A/c is to show that what amount is actually due to be paid to the debenture holders on redemption of debentures on a particular date and then the Bank entry shows what is actually paid; The due date & payment date may differs and thus it is advisable to use the Debenture holders" A/c; Also, many a times there may be situation when all are not paid ; some are paid and some are converted into preference/equity shareholders;
Passing direct entry is not preferable but if the date for both entries is same and also the amount a single entry would be no issue;
Regards,