akash (no) (160 Points)
01 August 2012
please experts help me.
we have made a sales amounting to Rs. 5,00,000 as on 30th march 2012 on a condition that if our debtor pay this amount before 5 april 2012 he will get 10 % discount , due to this our debtor paid this amount as on 2nd april 2012, now how will we pass journal entries from begning in our books according to prudence princple.
Giridhar S Karandikar
(Team Lead)
(7548 Points)
Replied 01 August 2012
The sale will be booked in March 2012 for Rs 5lacs. As the debtor has [paid the amount in the subsequent F.Y. therefore the 5lacs will remain outstanding in Mar12.
In Apr12 book the entry as below:
Bank A/c Dr 450000
disc A/c Dr 50000
To- Debtor 500000
Biswaranjan Moharana
(Student)
(46 Points)
Replied 02 August 2012
Provision need to be made due to Principle of Conservatism. there is no difficulty in recognising the provision amount also.
In our View the follwoing will be the entry.
When sales is made :
Debtors acct Dr. 5,00,000
To Sales acct 5,00,000
At year end , provision need to created , if not earlier maintained
Profit & Loss acct Dr. 50,000
To Provision for Discount of Debtors acct 50,000
At year end provision to be shown under teh head currentliabilities & provisions
In next year , when cash received
Bank Acct Dr. 5,00,000
To Detors acct 5,00,000
Again at year end the requirement of provision for discount will e reviewed,
case 1 : Total provisin say required is rs 60,000.
Already we have 50,000, so further 10 000 may be created
P & L acct dr 10,000
to provision for disc 10,000
Case 2 : Provision for disc reqd is say Rs 20,000,
we have surplus rs 30,000 to be transfeed to P & L acct as prior period item ( below line )
Entry
Provision for doubtful debt Dr. 30.000
To P & L acct. 30,000
Tejash Fafadia
(Article)
(78 Points)
Replied 02 August 2012
SHREE BISWARANJAN, I AM SORRY TO DIS-AGREE. THE PROVISION WILL REDUCE TO ZERO ONCE U UTILISE THE PROVISION IN PROVIDING THE DISCOUNT OF Rs.50000 TO THE SAID DEBTOR. HENCE IF AT YEAR END, IF U NEED THE PROVISION OF Rs.60000, U HAVE TO RECREATE THE PROVISION TO THE TUNE OF TOTAL Rs.60000.
EXPECTING YOU FURTHER VIEWS.
Biswaranjan Moharana
(Student)
(46 Points)
Replied 03 August 2012
Dear Sir,
yes you are correct in your aspect. Infact Provision is an year end adjustment. When we say we required closing provision of Rs 60,000 means, opening provision - discount allowed through out the year + closing provision reqd.
Thank you
Biswaranjan Moharana
(Student)
(46 Points)
Replied 03 August 2012
Summerising
When sales made
Debtors Dr. 5,00,000
To Sales 5,00,000 ( term : if payment made in 1 month disc @ 10 % )
We assume, paymemnt is made in 1 month,
Bank Dr. 4,50,000
Disc alld Dr. 50,000
to Debrots 5,00,000
We assume though out the year no other discount alloed is there. So total disct alld for th yesr Rs 50,000
We assume at begining of the year Opeing Provision for Discount was Rs.30,000
So opening was 30,000
Less alled 50,000
Balance ( 20,000 )
Say we need closing provison as rs 70,000
So prfit & loss will have 2 items
P & L acct Dr. 70,000
To Provison for Disc on Debtors 70,000 ( In P & L acct, i.,e abobe line )
For rs 20,000 shortage of last year provison
P & L appropiation acct Dr. 20,000
To Provision for Discount 20,000 ( in P & L appropriation acct , or below line,as prior period item )
Disc alld for the year rs 50,000 will be closed by transfer to Provision acct, not to P & L acct as already provison acct is maintained fo rthis
Provision for Disc Dr. 50,000
To Disc alld acct 50,000
thats all
thank you
akash
(no)
(160 Points)
Replied 03 August 2012
| Originally posted by : Biswaranjan Moharana | ||
 |
Provision need to be made due to Principle of Conservatism. there is no difficulty in recognising the provision amount also. In our View the follwoing will be the entry. When sales is made : Debtors acct Dr. 5,00,000 To Sales acct 5,00,000 At year end , provision need to created , if not earlier maintained Profit & Loss acct Dr. 50,000 To Provision for Discount of Debtors acct 50,000 At year end provision to be shown under teh head currentliabilities & provisions In next year , when cash received Bank Acct Dr. 5,00,000 To Detors acct 5,00,000 Again at year end the requirement of provision for discount will e reviewed, case 1 : Total provisin say required is rs 60,000. Already we have 50,000, so further 10 000 may be created P & L acct dr 10,000 to provision for disc 10,000 Case 2 : Provision for disc reqd is say Rs 20,000, we have surplus rs 30,000 to be transfeed to P & L acct as prior period item ( below line ) Entry Provision for doubtful debt Dr. 30.000 To P & L acct. 30,000 DEAR SIR, I HAVE 1 DOUBT.. if we have to increase provision by 10,000 in above case in the month of april 2012 then in which year i record that provision as u already mentioned. will we record addition provision in the same month when we have decded to increase it i.e in APRIL 2012 or IN MARCH 2012 according to prudence principle. |
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akash
(no)
(160 Points)
Replied 03 August 2012
Biswaranjan Moharana
(Student)
(46 Points)
Replied 03 August 2012
Provisions are not adjusted monthly basis, rather they are adjusted at year end.
See, lik ethis
What was opening provision sa Rs 20,000
Less : What discount we allowed through out the year, say Rs. 25,000
I.,e we have alowed discount excess of provisoon earlier made, so this extra 5000 is to be get from current year profit.
additionally current year profit will provide also closing provison required for next year.
When provision acct is there, discount will be transfered to provison acct & will be closed at year end.
Note : 1. All provisions will be treated in this way, except Provison for Depreciation ( Alternatively known as ACUUMULATED DEPRECIATION .
2. provision fo rbaddebt & provison for disc on debtors are 2 separate accounts.
Hope matter clear, if not write your full question.
thank you,
Biswaranjan Moharana
(Student)
(46 Points)
Replied 03 August 2012
if you are asking for provision for discount on Creditors, it is advisable not to maintain the Provision account as rules says,
Recognise alllosses, anticipate no gains.
Discount till realised, must not be regognised in the bookds of account.
akash
(no)
(160 Points)
Replied 03 August 2012
| Originally posted by : Biswaranjan Moharana | ||
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so you mean we will pass the entry like this-----
purchase a/c Dr. 5,00,000
To supplier a/c 5,00,000
-----------------------------------------
in next year 2012-2013---->
supplier a/c Dr. 5,00,000
To bank a/c cr. 4,50,000
To discount a/c cr. 50,000
am i right????
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akash
(no)
(160 Points)
Replied 03 August 2012
| Originally posted by : Biswaranjan Moharana | ||
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My question was-----
we have made a sales amounting to Rs. 5,00,000 as on 30th march 2012 on a condition that if our debtor pay this amount before 5 april 2012 he will get 10 % discount , due to this our debtor paid this amount as on 2nd april 2012, now how will we pass journal entries from begning in our books according to prudence princple.
And your answer is----
Provision need to be made due to Principle of Conservatism. there is no difficulty in recognising the provision amount also.
In our View the follwoing will be the entry.
When sales is made :
Debtors acct Dr. 5,00,000
To Sales acct 5,00,000
At year end , provision need to created , if not earlier maintained
Profit & Loss acct Dr. 50,000
To Provision for Discount of Debtors acct 50,000
At year end provision to be shown under teh head currentliabilities & provisions
In next year , when cash received
Bank Acct Dr. 5,00,000
To Detors acct 5,00,000
I m totally satisfied with ur solution but still I have one doubt i.e what if due to some reasons we have to increase discount on debtors upto 60,000, as we have already given 50,000 discount but now in the moth of april we think we have to increase this discount in order to get payment fast.. so my question is that in which year will will pass journal entry for additional provision for discount on debtor i.e rs. 10,000
Do we pass this under mentioned entry in 2011-2012 or in 2012-2013????
P/L a/c Dr – 10,000
To provision for dis on debtor Cr. 10,000
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Biswaranjan Moharana
(Student)
(46 Points)
Replied 03 August 2012
Correct.
At year end this discount received, will be transferd to P & L account as an income & wll get closed.
No need to open provision for disc on creditors account
Biswaranjan Moharana
(Student)
(46 Points)
Replied 03 August 2012
Your question :
what if due to some reasons we have to increase discount on debtors upto 60,000, as we have already given 50,000 discount but now in the moth of april we think we have to increase this discount in order to get payment fast.. so my question is that in which year will will pass journal entry for additional provision for discount on debtor i.e rs. 10,000
Ankit CA and CS
(Manager - Accounts)
(204 Points)
Replied 03 August 2012
on 30th March,
Debtors A/C Dr. 500000
To Sales A/C 500000
On 2nd April,
Bank A/C Dr. 450000
Discount A/C Dr. 50000
To Debtors A/C 500000
25 Hours GST Scrutiny of Return and Notice Handling(With Recording)
Survey, Search and Seizure under Income Tax Act 1961
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