Accounting entries for chit fund business

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This query is : Resolved

Trupti Sharma (Querist)

21 July 2015 Respected Professionals,
I have gone through the chit fund entries posted on this website before and I would like to raise a query.

The following is the excerpt of the chain of solutions given in this link: https://www.caclubindia.com/forum/chit-fund-accounting-152751.asp

"The entries were posted as follows:
While you are subcribing a chitty, th entry will be:
Kuri a/c Dr
To CAsh
(For the amount of payment we made)
On pricing/auction you must account in accrue basis:
Cash a/c Dr
Discount a/c Dr.
To Kuri
After that, all the instalment you pay must account in accrue basis:
Kuri A/c Dr.
To Cash
To discount."

In the first entry above, no discount was being recognized. But after the Chit is auctioned the discount account is credited and income is booked in P&l A/c when subsequent payments are made.
Why don't we account for the discount income before the Chit is auctioned?

It'll be of great help if I get a clarity on the same.
Thanking you in anticipation.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)

21 July 2015 The question of discount arises at the time of auction, therefor accounting of discount can't be preponed. Please see the entry given below at the time of auction of a chit of Rs. 1 lakh.

Prized subscribers a/c Dr 1,00,000
To A (subscriber) 80,000
" Foreman's Commission 5,000
" Auction Discount 15,000
( Being the due entry for the chit prized for Rs. 80,000)

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