Dear Friends
A sells goods to B for 100000 on 1-4-15. A gives B credit period of 10 days. If B doesnt make payment within 10 days A charges B interest @ 24% per annum.
On 25-4-15 B makes payment of Rs. 80000. He aint paying anything more.
A is loosing out on rest of Rs. 20000 plus interest he would have earned had B made full payment with interest for delayed payment.
what will be entries in books of A and B, full entries from beginning till end.
thanks
shivani
1.inital sales entry
vendor a/c dr.............100000
TO sales a/c.............100000
2. on receipt of part payment
Bank/cash a/c dr...........80000
TO vendor a/c
3. Entries on date of writitng bad debts
A. vendor a/c dr..............(interest amount)
TO interst earned............
B. Bad debts a/c dr................... (20000+interest amount)
vendor a/c.............................
Another view can also be taken (actually used in business) where unearned interest is written off, then entry for 3B shall be
Bad debts a/c dr.................. 20000
interest earned a/c dr.............interst amount
TO vendor a/c.........
HI Shivani,
The equired entries will be as under
In the books of A
On 1/4/15
B Dr. 100000
to Sales A/c 100000
On 24/4/15
Bank Dr. 80000
To B 80000
Bad Debts/Quality Deduction A/c Dr. 20000
To B 20000
In the books of B
On 1/4/15
Purchase Dr. 100000
To A 100000
On 24/04/15
A Dr 80000
To bank 80000
A Dr 20000
to Sundry Bal W/off / Purchase A/c 20000
Note: Interest will not be recognise as Income since its ultimate collection is uncertain as per Accounting Standard - 9 Revenue Recognisation
Thank You...
Hi mukesh and ambuj
thanks for ur reply
but both of u gave different answers
i dont know which one to follow
i m confused now
shivani
CAclubindia
