My one of the client accounts the liability (eg: purchase of material) as per the date of the invoice.
In one of the cases, delivery challans are dated last week of march and invoice is received on april first week and they have accounted it on april.
Client is arguing that its their accounting policy to account the entry as on the date of invoice as the liability will arise as and when they receive the invoice.
As per my personal opinion,liability will arise based on the date of delivery(not on the date of invoice)as per the accrual system of accounting. More over the respective liability is in respect of purchase of material.
Due to this,the respective entry is not disclosed under purchases and closing stock of the entity during last year.
Can you please help me out that my observation is correct or not?
30 November 2013
Your observation is undoubtedly correct. Your argument can also be supported by As-9 Revenue Recognition. As per AS, your point of sale is considered as and when substantial risk and liability is transferred to buyer in respect of sale transaction. So you have a weapon of AS-9.
CAclubindia
