Advance received from Party

This query is : Resolved

Amandeep Singh (Querist)
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18 February 2021 Dear Sir

Please suggest WE have received advance from Sundry debtors to sale some goods. But stock not available to us same stock to us with 2nd firm. Can firm 1 issued Purchase invoice to 2nd firm and then 2nd firm sold to goods to sundry debtors

Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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06 July 2024 In this scenario where Firm 1 (your company) has received advances from Sundry debtors for goods that are not currently in stock but available with Firm 2, you can handle the transaction as follows:

1. **Transaction between Firm 1 and Firm 2:**
- Firm 1 issues a Purchase Invoice to Firm 2 for the goods. This invoice should clearly specify the terms of the transaction, including quantity, quality, price, and any other relevant details.
- Firm 2 records this transaction as a Purchase of goods from Firm 1 in their books of accounts.

2. **Transaction between Firm 2 and Sundry Debtors:**
- Firm 2 subsequently sells the goods to Sundry debtors. They issue Sales Invoices to the Sundry debtors, detailing the goods sold, quantity, price, and other terms of the sale.
- Sundry debtors then make payment against the Sales Invoices issued by Firm 2.

### Accounting Entries Example:

**For Firm 1:**
- **When selling goods to Firm 2:**
```
Debit: Firm 2 (Accounts Receivable/Debtors)
Credit: Sales Revenue
```
- **When Firm 2 pays for the goods:**
```
Debit: Bank/Cash
Credit: Firm 2 (Accounts Receivable/Debtors)
```

**For Firm 2:**
- **When purchasing goods from Firm 1:**
```
Debit: Purchases
Credit: Firm 1 (Accounts Payable/Creditors)
```
- **When selling goods to Sundry Debtors:**
```
Debit: Sundry Debtors (Accounts Receivable)
Credit: Sales Revenue
```

### Considerations:
- Ensure that invoices issued by Firm 1 to Firm 2 and by Firm 2 to Sundry debtors comply with GST regulations, if applicable, and reflect the correct amount of GST charged.
- Maintain proper documentation, including purchase invoices, sales invoices, and payment receipts, to support the transactions in case of audit or review.
- If there are specific tax implications or regulatory requirements in your jurisdiction, consult with a tax advisor or accountant to ensure compliance.

By following these steps and maintaining accurate records, you can properly account for the transaction where goods are sold from Firm 2 to Sundry debtors after being procured from Firm 1.