we are clearing & forwarding agency, i have one query regarding freight charges, as per our auditor, they are saying that you should nullified your freight account for eg. if we charged 100/- to party & paid to air/ sea rs. 50/- in this case rs. 50/- is income but the auditor says difference of rs. 50/- should be shown under the freight income and both exp & income should be nullified
so my query is, is this mandatory to nullified freight account if yes than there is any circular or notification regarding that....
17 October 2012
Please reply me which entries you are passing at the time of charges of freights and paying of freights and which heads it was recognising i.e is such heads is in p&l account or Balance sheet.
17 October 2012
suppose we paid ocean freight rs. 100 entry will be 1) ocean freight paid dr 100 to creditor 100
if we raise bill to party of rs. 120 i.e 20 rs. is our income entry will be 2) debtor a/c dr. 120 to ocean freight received 100 to ocean freight income 20
( means we are showing that freight paid rs. 100 rcvd rs. 120/- in which rs. 100 paid and income rs. 20 as per auditor ) what he said that freight exp paid and rcvd should be same and difference will go to another head as income
17 October 2012
it is simply p&l item the query is only that is their any circular or rules for showing frieght rcvd paid should be equal and the differnce should go to another head as income all are cover under p&l but presentaion should be given as above
17 October 2012
Then your presentation and treatment is proper and not default or not the mistake because you collected excess amount also treated as income then no problem will arise and however you showing the difference under separate head of income then whats the problem of auditor.
thier was no seprate ledger of income i have shown that was also correct or not ?means freight ledger i have not tallied i trf. full amt to ocean freight rcvd ( not trf rs. 20 in income )
17 October 2012
That means ocean freight received grouped under balance sheet head. Is it correct? then your process is wrong then you should transfer such account to P&L account then auditor is correct.
i am preparing one trial balance for your clarification, i think u r not getting me
particular amt amt freight paid (grouped in p&l) 100
freight received (grouped in p&l) 120
this was my presentation means 120 is total amount it is total selling inclusive of profit ( all are p&l element not balance sheet )
particular amt amt
freight paid 100
freight received 100
freight income 20
( this is as per auditor all element in p&l not in balance sheet )
means what he want , he said that freight paid & rcvd should be same and difference will your income
and what i shows over here it is already income i have book but not seprated how much freight amount income so what i am saying suppose u r rendering some services
your exp rs. 100 your selling rs,. 120 so in this case 20 is your profit so he want that rs. 100 should nullified because it is freight and should get tally
i think this is the best explanation i can give it to u
ultimately my question is, is their any circular or standard regarding that, how much freight u collected it should tallied with how much u rcvd and difference show as freight income
17 October 2012
I understanded your problem at first time that way i said you are not mistaken and your process is acceptable according to your response to my answer it is indicating that you are going it through balance sheet i said like that.
However in you case it was not mistake by because of you treated income. It is not important to transfer or nullify the actual expenditure with the collection because of debiting to the P&L a/c or crediting to the income account which would be shows at credit side of P&L a/c for the type entries profit is same so not must and should of nullifying of expenditure amount with collection amount and both are same. But some of the auditors or accountants etc... are following like that i.e nullifying the actual expenditure with the receipt and excess will be treated as income like commission or any other because of to tall the actual expenditure and actual receipt. So according to me your process is not wrong it also acceptable.
Are you understand? otherwise call me :08985063892 if you want any clarification with explanation.
18 October 2012
ur auditor is correct, i belive he is not saying it with audit or accounting point of view. what he means to say that in ur invoice you should mention two seprate item one reimbursement of frieght charges Rs. 50, second ur fees say clearing and forwarding charges Rs. 50. first 50 will go to expenses to nullify the account in the your books and second will form part of your income, by this treatment u have to charge service tax on second 50 only, same way your debtor will also deduct TDS on second 50 and not first 50 which is not your income but mere a reimbursement of the expenses that you have incurred.
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