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Query about credit sales

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Bina Belur

marketing

32 Points Posted on 17 February 2012

Hi. I have a query. If I purchase goods on credit and my working capital is also on credit and I also make the sale on credit, where will the net profit in this case go in the balance sheet other than the net profit on the liabilities side? I cannot debit cash account as it is a credit sale. Will the owner's equity also increase witht eh net profit amount?

Replies (4)

A learner

Corporate Accounts

199 Points Posted on 17 February 2012

Its lying in difference between your debtors and creditors..

in assets side Debtors will increase by the corresponding amount and will reflect there..

Thanks

" A learner"

Bina Belur

marketing

32 Points Posted on 17 February 2012

hi...i know account receivables will be debited.....but the net profit arising from 100% credit sale...can i add it to reserves and surplus or cash account? please let me know ...i am confused..

A learner

Corporate Accounts

199 Points Posted on 17 February 2012

Dear,

Whether sale is on cash basis or credit doesn't affect the accounting treatment.

Its a Profit sitting in your reserve & surplus( as a addition to reserves in current year) and as reflected by account receivables. Where is the question of cash ? Cash is not at all used.

Hope clarifies the issue...

Thanks

" A learner"