Advance payment in profit loss statement

The following trade happens between company A, B and C.

A supplies products to B. Only proforma invoice is given and payment is treated as advance. Tax invoice will be issued after reconciliation and that goes into next financial year.

B supplies products to C. Tax invoice is issued.

How does company B treat it in the profit and loss statement?

How does the advance accounted for ? 

 

 

 

 

 

Replies (2)
Quick Summary
This discussion explores how Company B should treat advance payments and goods received when only a proforma invoice from Company A is available. The suggested accounting involves debiting purchases and crediting Company A upon receipt of goods, with subsequent adjustments when the tax invoice is issued. The focus is on correctly reflecting these transactions in the profit and loss statement and ensuring no unnecessary income tax is paid, especially for zero-tax-rated items.

Dr Purchases
Cr A

for good received but bill not received.

Above treatment for B in the year of receipt of goods. And pass two entries in the year you receive the tax invoice
1. reversal entry of earlier entry
2. pass purchase entry of tax invoice

Theoretically, this seems well but practically, GST input tax credit issues will crop up and unnecessary excess payment will happen in earlier years.

The items in question are zero tax rated. So gst payment issue won't be there.

 

Just to clarify, I'm assuming in this treatment suggested by you, there won't be any extra unnecessary income tax payment , right  ? 

 

Thanks

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