Accounting for outsourced inventory production

1. This belongs to Revenue Recognition standard. Principal- Agent relationship.

2. In whose books? X company?

3. In whose books? X company?

suppose  we are passing  in the Books  of  X & co ,  

1)  Sale of software to A & co 

     A & co          A/c     Dr          $2500/- 

    To Sales       A/c      Cr                          $ 2500/- 

   ( booking  of sales entry )

2)  Company  X has given same job to sub contractor with  advance ( principal  & Agent ) 

      Advance  to sub contractor   A/c   Dr           $1000/-

      To  Bank                               A/c    Cr                           $1000/- 

  ( Advance  payment  to sub contractor ) 

Note - Advance to sub contractor  A/c  will be under  head  Loans & Advance in Asset side of Balance sheet  

3)  after  software  received  form sub contractor  

    Sub contract  Expense         A/c  Dr               $ 1000/-

    To  Advance  to sub contractor   A/c  Cr                           $ 1000/- 

(  Software  received  form  sub  contractor  , and  advance  adjusted ) 

4)  Software delivered  to A& co  and money  received 

     Bank              A/c     Dr      2500/- 

    To  A & co      A/c     Cr                      2500/- 

(  Being payment   received  after  software  delivered )