@ Neha please go to my earlier reply

it is somewhat a position what i gave

and it happens enerally in case s of medicalsotres as earlier told by mr Abhinav

@ Vijay

yes we have to first Dr commision abnd freight as it will reflect True and fair view of accounts

like expenses first paid / incurred by the comalny which are later on recovered/re-imburesd from debtor as the acse may be...

Hi Anuraag,

Whatever you are saying is logically right but practically it will not work. Why I am saying that we should debit the the debtor directly instead of Commission & Freight A/c because when you pass your 1st entry at the time of year ending or before finalizations of books it will present your books wrongly (Please note I am talking abt only 1st entry & not abt the 2nd one).

In above circumstances above entry will reduce your profit & also your debtors a/c balance.

To avoid above situation we should treat expenses paid on behalf of debtors which is recoverable as advance given or repayment of advance or we can use commission recoverable & freight recoverable a/c which must be sundry debtors by nature.

Entry given by you satisfied the question of Neha but if you will go in deep then you realize that what I am saying is right. 

Confusing but nice discussion

@ Vijay

yes you can pass those entries practically

bt please note first that True and Fair Accounts are the major requirements

talking about the Credit Balance of Debtors please consider:

Whenever Any Sundry Debtor has  aCredit balance at the time of closing of books or finalization of accounts we always show it under Current Liabilities under the head Advance Received from Customers, as it has become the liability of the company either to refund the amount of advance or to effect a sale transaction with that debtor.

and under Notes on Accounts we have to describe For what and from whom the Advances are received.

Now it'll not reduce any clsoing balance of sundry debtors.

Now consider another situation

Debtor Mr B. purchased some goods from Company C Pvt Ltd on credit worth Rs. 5,000 commission paid to commission agent by the company Rs. 100 and Freight paid by the comapny Rs. 100. The Debtor has entered into an agreement under which commission and freight are recoverable from the debtor itself.

Later on the comapny was able only to recover Rs. 3,000 from Mr B and for the rest balance he turned bad.

Now P/L A/c will eflect this:

Commission xxxx (inclusive of Rs. 100                       GP b/d xxxxx

from Mr B)                                                                          Indirect Incomes:

Freight xxxx (inclusive of Rs. 100                                 Commission Recovered xxxx (excluding Rs.

from Mr B)                                                                        100 from Mr B)

Bad debts xxxx (inclusive of Mr B                                  Freight Recovered xxx (excluding Rs.

for Rs. 2,200)                                                                   100 from mr B)

Further suppose Mr C a Debtor has entered into an agreement under which commission and freight will be paid by comapny and will not be recovered from him.

Now Company has Three Types of Debtors:

1. Debtors - who has given advance for sakles effected and comm. & Freight to be paid on the sales transaction on their behalf by the comapny.

2. Debtors- entering into sales transaction comm & freight first to be paid by the comapny later on recovered by them. Some of the debtors turne bad.

3. Debtors- entering into sales transaction comm. & freight not to be recovered from them.

And a comapny usually have a no of types of Debtors in such situtions(specially debtors of type 2 turning bad) if you are showing commission and freight also as debtor thjen it will automatically increase the amount of your bad debts:

which has the following effects:

1. Company & its management is not giving importance towards the steps to be taken for recoveries from customers.(bAd debts are high...they may be too high where the most of the part f bad debts constitute comm & freight unrecovered)

2. Company has not a good policy for choosing good customers (based on credit ratings...again bad debts are too hiogh)

3. If you are showing unrecovered comm. & freight to Discount to customers: (As most of the customers could alos of 4th category who pay for the whole dues regarding sales bt not for comm & freight)

Company is allowing its customers a huge amount of Discount with no reason..... which is not good for its PBT,EPS, market rating. As such types of Discount can't effect an increse in sales or GP....they are purely against the concept under which discounts are allowed to customers.

4. And Major point is Accounts are notr reflecting True and Fair position

Please Consider!!!

regards,

Hi Anuraag,

It is nice to come in touch with you. You have very good knowledge. I am really impressed & agreed by the presention given by you. But the problem is may be I am not able to communicate my part properly. However 1 more time I would like to drag your attention towards differences of effects of both entry over final books. 

Entry given by you

(Assume GP is 10000 before passing this entry)

Mr A (Debtor) A/c Dr. 8,000

Commission A/c   Dr. 1,000

Freight A/c            Dr. 1,000

  To Sales A/c                         8,000

  To Cash A/c                          2,000

Effect on P&L

Effect on BS

Entry given by me

Mr A (Debtor) A/c Dr. 10,000.00

  To Sales A/c                         8,000

  To Cash A/c                          2,000

Effect on P&L

Effect on BS

Now it is clearly shown that 1^st entry is reducing NP & increasing current liabilities.

Please dont take this hardly I am just trying to clarify my doubt.

Hope we will discuss over other topics in future.    

Thanks & Regards

Hello Vijay thanks for the appreciation you made

and there is nothing about taking anything hard as we are here to increase and share our knowledge while removing our doubts with a great discussion
Its nice to come in touch with youi!!!

i respect your query,...and for the same i have replied you this time gain

but there was aproblem of time out or session expire.....

and the whole of the solution i hae types got bursted :( :(.....and i am not in position to type that again...as my fingers wil not support me any more ahahaha to type taht long solution

hoping to get a response from you on my details as provided to you in PM

Sorry for the inconvenince

email anu_casharma08 @ hotmail.com

Hello Vijay

m Really sorry forsuch a late reply

n yeah please consider that there will be no effect on profit by the entries given by me:

As the advance has already been recived from the customer hence recioveris of comm & freight will immediately be done as & when the sales transaction tooks place...

& the entries will be:

Mr A (Debtor) A/c Dr. 8,000

Commission A/c   Dr. 1,000

Freight A/c            Dr. 1,000

  To Sales A/c                         8,000

  To Cash A/c                          2,000

(narration)

---------------------------------------

Mr A (Debtor) A/c Dr 2,000

   To Commission A/c       2,000

   To Freight A/c               2,000

(narration)

-------------------------------------

Now it will have the imapct like this

Effect on P&L

Effect on BS

Now assume the same for another debtor which has not given advances then in such case you can't show commission & freight inclusive in Debtors balance as it'll imapcat over Current Assets & Bad Debts will no reflect True & Fair Picture of Accounts. The consequences has already been posted in my eralier posts.

and please also consider that you should know whats your motive hile finalizing the accounts of a company:

1. Profit Motive

2. going Concern, Consistency

it helps preparing accounts as in profit motive the aim is to increase the profit but if it is not then the motive is to run business on long term & consistent basis in which profit sholud not be manipulated by tarnsfer of accounts from balancesheet to P/l or by changing accounting policies repeatedly.....

Thanks & Reagrds!!

Also here

although entries given by both of us are giving the same impact

but here consider the situation by taking an example of a debtor who has not given any advances and who turned bad for the amount of commission & freight.....

in such case try considering bad debts impact over debtors' balnce , imapct over Current assets & Working Capoital as well as sahreholders worth

the all of the above said aspe cts has laready been discussed herewith

Hope you have got the solution now!!!

in case of further query we can discuss it more!!

Thanks & reagrds!!!

whay so much of argument

such entry will be passed when the debtor is a consignee

Yes, i agree with Anuraag Sharma, it is refunding the excess advance money received after recovering the expenses incurred on supply of goods