Multiple choice

When Interest is received on Sinking Fund Investment method, which of the following accounts will be credited?

(i) Interest on Sinking Fund Investment account

(ii) Sinking Fund account

(iii) Bank account

  1. Only (I) and (ii)

  2. Only (ii) and (iii)

  3. Only (I) and (iii)

  4. (I), (ii) and (iii)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When sinking fund investments earn interest, accounting practice requires crediting three accounts: Interest on Sinking Fund Investment (to recognize the income), Bank account (when cash is received), and Sinking Fund account (to transfer the interest to the fund). This ensures proper tracking of investment income and fund accumulation.

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