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Treatment of goods not received till last day of fy?

Nitin Singhal (Gaining knowledge...) (320 Points)

16 September 2012

Hello Friends,

Placed below is a query relating to accounting treatment of Goods not received by us till last day of Financial Year:

A company, say X Ltd. (situated in New Delhi), gave advance for sending certain goods with a company, say Y Ltd. (situated in Chennai), on 29th March 2012 on the condition that remaining payment will be made after receiving of goods. Y Ltd. despatched goods on 31st March 2012 but they were received in New Delhi only on 4th April 2012. Now we are preparing Balance Sheet as on 31st March 2012 for X Ltd. What should be the accounting treatment of this situation in X Ltd.'s books?

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12 Replies

Nitesh Gupta (Articled Assistant) (145 Points)
Replied 16 September 2012

Pass an entry..........Goods in Transit A/c Dr. To Y Ltd. .............show Goods in transit A/c under current assets..............

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Nitin Singhal (Gaining knowledge...) (320 Points)
Replied 16 September 2012

@ Nitesh: Is it correct to pass that entry, since we do not know whether they have despatched full order value or partial and also we dont have invoice to support this entry?

Sumit Grover (Chartered Accountant ) (3652 Points)
Replied 16 September 2012

At the same time, anothe entry should hav been passed for advance paid to Vendor

Y Ltd A/c Dr.

To bank A/c

Nitin Singhal (Gaining knowledge...) (320 Points)
Replied 16 September 2012

@ Sumit: Entry for payment of Advance has been properly passed in Books of Account as you have mentioned. The main question is relating to treatment in 31st March B/S.

vishnu (Audit Assisstant) (109 Points)
Replied 16 September 2012

show the y ltd as an advance paid to creditor in current assets

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chandra (student) (528 Points)
Replied 17 September 2012

Check Challan or Excise / Tax Invoice.

If despatch date is 31st March, then show goods in transit in stock and pass entry for provision for purchases

Purchases A/c Dr to Supplier's a/c and write narration as provision for goods in transit.

CA Surendra Prajapati (Deputy Manager (Finance)) (361 Points)
Replied 17 September 2012

Dear Nitin Singhal

If invoice is dated on or before 31st March & goods actually have been received after 31st of March then treat it goods in transit accordingly

but if invoice is dated after 31st March then treat it just advance to party

Surendra

ANJALI NEGI (Chartered Accountant) (1263 Points)
Replied 17 September 2012

yes u can show these goods not yet received byu as Goods in transit

Arif Ali (Apt Co Advisory) (1230 Points)
Replied 17 September 2012

Hello Nitin, pass the entries as follows on 31st march in the X Ltd's books.

Goods in Transit A/c ..... Dr.

To Y Ltd A/c

According to this entry, in the balance sheet, at Liabilities side, under Current liablities, balance of Y Ltd will be shown (i.e Total payable amount-advance paid) and Goods in transit will be shown in the assets side under Current assets.

And in the P&L A/c, Goods in transit will be shown in Debit side and accordingly credit side.

But As per Tally software, you have to pass two entry for this, one gived the effect to P&L and other gives the effect to Balance Sheet.

1. Goods in Transit A/c (Purchase Head)....Dr

To Y Ltd A/c (Sundry Creditors Head)

2. Goods in Transit (Current assets head)...Dr.

To Goods in Transit A/c (Purchase Head)

The above entry is only gives the effect to Tally software. But you have to show the accordingly entry as abvoe as manually.

chandra (student) (528 Points)
Replied 17 September 2012

Stock account entries are not passed in financial accounts. Stock figure is external to financial accounts unless it is 'Integrated Cost and Financial System'.

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Manjunatha M K (Manager - Accounts) (318 Points)
Replied 17 September 2012

Dear Nithin,

Before passing the entry in the books you should check the following.

When the goods are in transit on 31st March, who is bearing the risk & rewards of the goods ? (I mean if the goods are lost/destroyed who will bear the loss)

If the Seller is bearing the loss, then need not to pass any entries in the books of the buyer.

If buyer is bearing the loss, then you have pass the entry like our friends suggested.