Accounting treatment of receipts

This query is : Resolved

Guest

Guest (Querist)

14 March 2008 My client run MLM company and charge Rs. 2600.00 from members. Out of this He Credit Rs. 130.00 for service charges, Rs. 470.00 give General Insurance Polocy and Balance Rs. 2000.00 He book under Credit Liabilities. This way he accumulate Rs. 2000.00 under current liabilities and Pay the commission or incentives to members whenever they achieve certain target and deduct TDS from this payment.
I want to know is this the right accounting method.
Can we directly credit under current liabilities with crediting such receipt to P&L a/c.
Please guide me.

R.V.RAO

R.V.RAO (Expert)
Follow

14 March 2008 1.service charges of Rs130/-can be accounted as income and credited to p&l account.
2.gen. insurance premium if he is paying to ins. company , that can be taken as exp. in p&l account.(the settlement of policy is between insurance company and members).
the ins. premium of Rs 470/- is also received from members and shown as premium recd. from members. so it is a conta entry and does not result in income or exp.
3. as for current liability received rs.2000/-,it is payable back to members .if paying back to members is certain, one cannot treat it as income and credit to p&l account.
if you offer rs. 2000 per member as income and offer to tax assessing officer will be too happy. but when the amount is payable back to members , there is no validity in crediting same as income.
commission and incentives payable to members can be treated as exp. ( tds is applicable).
R.V.RAO

Guest

Guest (Querist)

17 March 2008 Mr. Rao thanks, But my query is that the Rs. 2000 received from different members are accumulated in current liabilities and out of that he is paying the incentives to members as per their downline members. Further TDS is deducted from the incentives. I want to know that how is it possible to pay incentives from current liabilities because incentives are expenditure which should be debited to P&L account and Rs. 2000 accumulated are booked as current liabilities.
Please guide me

Upgrade to CAclubindia Pro. Subscribe Now!