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Date/Year for Passing accounting entry

arunkumar (CA Final NCMP (Level - I)) (83 Points)

02 July 2009

One of our Client(Pvt. Ltd. Company) is in production sector and sends the raw material for conversion works to outside agencies. One such outside agency has delivered the material after conversion on 25/03/2009 (as per Delivery Challan date) but billed for the same on 05/04/2009(as per invoice date) Please advise me when the entry for Labour Charges for conversion has to be passed in the books of accounts.

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4 Replies

niket (Articled Assistant) (63 Points)
Replied 03 July 2009

Originally posted by :arunkumar
"	One of our Client(Pvt. Ltd. Company) is in production sector and sends the raw material for conversion works to outside agencies. One such outside agency has delivered the material after conversion on 25/03/2009 (as per Delivery Challan date) but billed for the same on 05/04/2009(as per invoice date) Please advise me when the entry for Labour Charges for conversion has to be passed in the books of accounts.	"

you should passed the entry in the year 2008-09, as the principle of ' SUBSTANCE OVER FORM ' is applicable here.

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Chandrashekhar Azad (Chartered Accountant) (45 Points)
Replied 03 July 2009

No matter the material conversion has been done on previous year but the bill has been issued on the next financial year. So as per the concept of materiality the entry for the same should be passed in the next finacial year as there is documentary proof related to that is the bill date of the item.

Abhijit Bansal (Proprietor) (30 Points)
Replied 04 July 2009

In my opinion, since the work was done in the previous year and the materials were also received, if the tentative amount of the work is known to us, we should provide for the amount, and subsequently when the bill is received the same may be adjusted. However, in case we have no idea of the amount, the entry is to be passed in the subsequent year as the primary information (i.e. figure) is missing and in the absence of this entry cannot be passed. This is possible only after receiving the bill. As a matter of prudence youb should advice the other company to bill in the same month of despatch because it is customary to bill the parties at the end of the month. Bill date should be falling within the month, actual bill may be received after the month end. This will help you and other company a lot in calculation and accounting of VAT too.

CA Dipen Ruparelia (service) (24 Points)
Replied 04 July 2009

I think, JObwork Expenses should be recognised by provisioning there of like way of Salary/Electricity Charges/telephone charges for which service received during the year & billing may be on later date as generally we are making the provision either month/year end. Wt if there are sale of such goods before 31.03.09 ! It means your stock will updated on the the basis of challan & despatch also possbile by way of Sale with/without further process. To match revenue recognision principle, we should recognised such processing charges in 08-09 in the present case.