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Raising sales invoice before recording the corr. purchases

Radhika (Articled Assistant) (30 Points)

24 November 2010

Hi,

An entity is engaged in purchasing materials and reselling them at a higher price. What is the risk / impact of raising sales invoice and accounting for the same without accounting for the corresponding purchases in the books of accounts?

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2 Replies

Yogesh Shah (Managing Corporate Finance) (1051 Points)
Replied 25 November 2010

Hi Radhika,

From your question there seems two possibilities you wanna clarify.

First that entity has purchased goods, sold them and they are just trying to record / account sales before purchase entry.

In this case, risk / impact will be – wrong accounting policy. Since, the same goods which entity purchased they sale, means sale depend on goods purchased. If goods are not purchased, sales will not be there. Hence, entity has to record purchase first.

Second that if entity is just recording sales without even goods purchased, then this is totally wrong. Is entity speculator? No na?

Just apply correct situation. If my assumptions / predictions are wrong, tell me.