Accounting entry

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Gurwinder Singh (Querist)
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21 July 2016 we are running a manufacturing unit
in financial year 15-16 we purchase old empty plastic drums from kabari wala without any bill in cash
value of that drums is 45000.00 ( 10000+12000+15000+8000)

kindly tell the accounting entry for the same
in which head it should be debited

thanks

Gurwinder Singh

Gurwinder Singh (Querist)
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22 July 2016 kindly help me please

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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14 July 2024 When your manufacturing unit purchases old empty plastic drums from a kabari wala (scrap dealer) without a bill and in cash, the accounting treatment would typically depend on how you intend to use these drums within your business operations.

### Accounting Entry:

1. **Assuming the Drums are for Production Use**:

If these drums are intended to be used in your manufacturing process (for example, for storing chemicals, raw materials, or finished products), you would treat the purchase as part of your inventory acquisition. Here's how you would record the entry:

```
Dr Raw Materials Inventory (or Consumables Inventory) 45,000.00
Cr Cash/Bank Account 45,000.00
```

- **Explanation**: You debit Raw Materials Inventory (or Consumables Inventory, depending on how your chart of accounts is structured) to recognize the acquisition of these drums for production purposes. The credit goes to Cash or Bank Account because you made the payment in cash.

2. **If the Drums are for Other Use (e.g., Packing or Storage)**:

If these drums are not directly used in production but rather for packing or storage purposes, you might treat them as part of your operating supplies or packaging materials. The accounting treatment would be similar:

```
Dr Operating Supplies Expense (or Packaging Materials Expense) 45,000.00
Cr Cash/Bank Account 45,000.00
```

- **Explanation**: Here, you debit Operating Supplies Expense (or Packaging Materials Expense) to recognize the cost incurred for acquiring these drums. Again, the credit is to Cash or Bank Account for the cash payment made.

### Head in which it Should be Debited:

- **Raw Materials Inventory**: If the drums are considered part of your raw materials inventory because they will be used in your manufacturing process.
- **Consumables Inventory**: If they are classified as consumables used directly in production or other operations.
- **Operating Supplies Expense**: If the drums are for general operational use like packing or storage and are expensed immediately.

### Important Considerations:

- **No Bill and Cash Purchase**: Since there is no bill for the purchase, ensure to document the transaction thoroughly with details such as date of purchase, vendor (kabari wala) details, and purpose of purchase.
- **Inventory Valuation**: If the drums are part of your inventory, their valuation may need to be adjusted based on usage or wear and tear over time.
- **Tax Implications**: In some jurisdictions, you may need to report such purchases to tax authorities to comply with regulations related to cash transactions and purchase of scrap materials.

By accurately recording these transactions and categorizing them correctly in your accounts, you ensure proper financial reporting and compliance with accounting standards. If you have any specific tax implications or further questions, consulting with a professional accountant or tax advisor would be advisable.

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