Transfer of unsecured loan to debtor account

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This query is : Resolved

CA Sanjay Baheti (Querist)

21 April 2012 One of client being a Partnership Firm engaged in manufacturing activities.
Last year the firm was covered under Tax Audit.During the year under audit certain funds transfers were observed between client and associate concern & the credit balance at year end we have shown the same as unsecured Loan from Associate Concern as interest free and accordingly we have finalized the Audit Report & Final Accounts.

Now during the F.Y.2011-12 our client has also sold goods to the said concern & considered the said Account as mix account in books i.e. both unsecured Loan & Goods Account.However when I scrutinized the books i have segregated the same in two accounts i.e. one as unsecured Loan & Debtors Account.

Now query is whether credit balance in Unsecured Loan Account & Debit Balance in Debtors Account at year end can be transferred to each other to square both the accounts or not by way of JV.

Whether any restriction for such transactions in books from Tax point of view/accounting concept of view.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)

11 May 2012 Amount receivable from a party can always be adjusted against the amount payable to such party by way of a book entry.

There is nothing in law which prohibits such a transaction.

Accordingly, the balance in the unsecured loan account can be adjusted against the debtor account.

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