Hi All,
Please give a detailed explanation for the Journal Entry given below. I was not able to understand what reasoning from Golden Rules was used to reach this Journal entry.
- Employees had taken stock worth 10,000(Cost price-7500) and the same was deducted from their salary in the subsequent month.
Journal entry-
Salaries A/C 7,500
To Purchase A/C 7,500
Question-
1.Explanation for Debit and Credit using Golden Rules
2.Why 7,500 is being debited and Credited,why not 10,000.
I THINK U HAVE POSTED WROMG ENTRY. THE ENTRY SHOULD BE..........
SALARIES A/C DR. (DEBIT ALL EXPENSES) 100000
TO SALES A/C 10000
( HERE SALE ACCOUNT SHOULD BE CREDITED BEACUSE THE STOCK WHICH IS GOING OUT OF THE BUSINESS ISNOT ON COST PRICE BUT IT IS GOING OUT OF THE BUSINESS AT PROFIT [ 10000-7500] . PURCHASE ACCOUNT CAN BE CREDITED IF EMPLYEES TAKING GOODS AT COST PRICE NOT ON SALES PRICE)
HOPE THIS CAN HELP YOU. EXPERT'S COMMENTS ARE WELCOME.....................
Employee A/c Dr 10000
To Sales Cr 7500
To P&L Cr 2500 (Profit between sales price and cost price, 10K-7.5K)
.................................................
Salaries A/c Dr 7500 (Salaries expenses, maximum, assume matching concept)
To Employee A/c Cr 7500
...............................................
Balance Rs. 2500 will stand in employee a/c which will be recoverable.
...............................
According to AS 9 “ Revenue Recognition “ revenue shall be recognized when transfer of property in goods and significant risks and rewards happened and measurability and collectability is certain, hence the same shall be treated as sales. However In the given case certain goods have been taken by employee at cost and this might be the company policy that such items with limited number can be taken by employees at cost price without adding any profit on the same, moreover in the economic reality as per the substance of transaction the entity allows the employee to take this item at cost price does not come in the ambit of normal sale and treated at par with owners withdrawal. Hence the journal entry will be .
1. Goods taken by employee
Employee account Dr. 7500
Purchases Cr 7500( to reduce the cost to the extent of goods taken by employee)
2. Salary booking
Salary Expenses Dr.7500 ( part of cost of stock)
Employee Account Cr7500
3. Final entry ( Employee account Debit and credit offset)
Salary Expenses A/c Dr.7500
Purchases Cr.7500
salary a/c dr. 7500
sales a/c cr7500
| Originally posted by : Prachi Srivastava | ||
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I was not able to understand what reasoning from Golden Rules was used to reach this Journal entry. - Employees had taken stock worth 10,000(Cost price-7500) and the same was deducted from their salary in the subsequent month. Journal entry- Salaries A/C 7,500 To Purchase A/C 7,500 Question- 1.Explanation for Debit and Credit using Golden Rules 2.Why 7,500 is being debited and Credited,why not 10,000. |
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Answer 1.
3 Golden rules are here under:-
(A) "Debit the receiver, credit the giver"
(B) "Debit what comes in, credit what goes out"
(C) "Debit all loses and expenses, credit all gains and incomes"
According to rule "C" part 1st - Debit the salary A/c
According to rule "B" part 2nd - credit the purchase A/c
Answer 2.
7500 is being debited and credited because its not sales. its like drwaings of stock by owner and payment as salary. Employees are not purchasing from Business but receiving salary from business hence profit does not arise here.
"- Employees had taken stock worth 10,000(Cost price-7500)"
You mentioned wrong information above. how you calculated stock at Rs.10000 when cost price is Rs. 7500 ( stock valued at lower of cost or selling price ) So stock is worth Rs. 7500 and not of Rs. 10000.
Hope you are satisfied
explanation 1- its a sales , salary a/c dr
to sales a/c cr
exp. 2 - 7500 OR 10000 its not a big issue . it depend on employee & employer agreement
What is feel is that the company must have given away its stock at cost in that case the Journal entry that u have passed is correct.
Salary A/c Dr
To Purchase A/c
But if the company sells the stock at a profit i.e higher than the cost price in that case the sale should have come in place of purchase along with a corresponding profit in credit side.
Salary A/c Dr
To Sales A/c
To Profit on sale of goods A/c
The above entries are perfectly in consonance with the accounting practice prevalent in India.
purchase deducted only in case of goods lost or destroyed, theft or drawings.
otherwise sales should be credited
My view is that..
if employee ledger account maintain
1.Salary Account Dr (with monthly salary)
To employee Account
2.employee Account Dr.
To sales Account
(its depend on amount at which goods are given to employee, doesnt matter what is cost or selling price)
3.Employee account Dr.
To Cash/Bank A/c(with balance amount given to employee, if any)
if employee account is not maintain
Salary Account Dr(total salary)
To sales(agreed amount of goods btn employer and employee)
To cash/Bank(remaining amount paid)
Note; first way is more explaining and appropriate
journal entry will be this
employees a/c debit rs.7500/-
to sales a/c rs.7500/-
I dont understand the difference between cost and worth. Stock is recognised at cost as per AS2 (NRV in some exceptional cases)
My entry will be this:-
Salaries payble a/c dr 10,000
to Sales a/c 10,000
(Being sales accounted)
-----------------------------------
according to my views
the journal entry is
salaries a/c dr. 7500
To Purchases a/c 7500
if any employee had taken goods from the company then it should be treated as drawings that made by the propreitor.
for propreitor
the entry will be
Drawings a/c dr. 7500
To Purchases a/c 7500
in this present case:- employee is taking the goods from the business and now salaries should be debited with 7500 only.
if any employee has taken the goods from the business concern then they will take at the cost price only and not at the selling price.
CAclubindia
