Twice payment for Sundry Creditors
1. No rectification entry needs to be passed since accounting is done for the transaction. Payment has been made twice and hence accounting for the same has been done.
2. We need to decide on how the supplier balance needs to be presented in the financials.
a) If there is any other payable to the Supplier which exceeds the amount of this excess payment (i.e. net supplier balance after considering this excess payment is credit), then the net balance can be shown as Sundry creditors in the balance sheet. This is on the assumption that the supplier agrees that this excess payment can be adjusted against other payables to him
b) Otherwise, the net balance shall be shown under Loans and Advances. If the management estimates that this excess payment cannot be recovered then the amount shall be shown as Doubtful advances and adequate provision needs to be made for the same.
Goods sold in transit
1. If goods are sold on Ex-works basis, the Substantial risks are transferred by the Seller at the factory gate itself. So Revenue on such sales can be recognized immediately on dispatch
2. But in case terms entered with the buyer is that you will dispatch the goods at the Buyer’s location, then Substantial risks are transferred only on dispatch of goods at the buyer’s location and hence revenue on such sale can be recognized only on dispatch at the Buyer’s location.
3. But in practice, Enterprises recognize revenue immediately on dispatch of FG from the factory.
a) This practice cannot be justified on the fact that Insurance is taken on transportation and hence risks are hedged against, since insurer will be settle only the Cost of the goods sold and not at the sale price.
b) But this practice of the industry is considered appropriate because:
- Acknowledgement of receipt of goods can be obtained from the Customer on the delivery challan within next 2-3 days after the date of Profit & Loss A/c (say y.e. 31.03.2010)
- Hence it can be shown as Sales in this Profit & Loss A/c