Free items received, where to debit in accounts, TDS u/s 194R

A/c entries 646 views 2 replies

Manoj Punjabi

Accountant

376 Points Posted on 13 August 2024

Sir/Madam/Experts

Please guide on this:

Free stock item received with other stock item (like one free for one) but product is different.

Stock item accounted as free in purchase, free in sales too with same stock item.

Now TDS u/s 194R paid by supplier on total value of that free stock, so we have to show that value as income to claim TDS, we cannot ignore it as it is showing in 26AS TDS amount.

If we show it as income as free gift, then question is where to debit it in books, as it is not payable to anyone.

Say free items value is Rs.1000.

I will credit it as gift income in P/L account, Rs.1000.

But where to debit it in books? The amount is not payable to anyone.

Replies (2)

Rama chary Rachakonda

Master in Accounts & high court Advocate

9615 Points Posted on 14 August 2024

When you receive a free gift, you need to account for it in your books. Since it's not payable to anyone, you can't debit a payable account. Instead, you can debit a capital reserve account or a specific reserve account created for this purpose. Here's the journal entry: Debit: Capital Reserve/Capital Account (Rs. 1000) Credit: Gift Income (Rs. 1000) Alternatively, you can also create a specific reserve account like "Gifts Received" or "Free Items Reserve" and debit that account instead of the capital reserve account. By doing this, you're recognizing the value of the free gift as a non-operating income in your Profit & Loss account and offsetting it with a corresponding increase in your capital reserves. This way, your books will reflect the true financial position of your business.