If tax invoice is dated 23rd of march and goods received on 2nd april to car service dealer who has full responsibility of goods after goods exit from factory for delivery.
What should be the proper date to recognise purchase? Whether in April (Current Year) or in march (Last year)?
| The recognition of a purchase depends on the accounting standards applicable and the nature of the purchase: 1. Basic Recognition Principle: A purchase (of goods) is recognised when: - The risks and rewards of ownership have transferred to the buyer - The goods are received / control is transferred (not merely when invoice is received or payment is made) 2. Under AS (Indian GAAP): - Purchase of goods: Recognised when the significant risks and rewards of ownership pass to the buyer — typically on receipt of goods or on the date specified in the agreement - Under Accrual System: Record purchase when goods are received (delivery note/GRN), even if payment is not yet made 3. Under Ind AS 2 (Inventories): Costs include all costs of purchase (invoice price + freight + duties minus trade discounts). Purchase is recognised when goods are received and title/risk passes. 4. Practical Rules: - GRN (Goods Receipt Note) date is the standard recognition date for purchase in most businesses - FOB Shipping Point: Recognise purchase when goods leave the seller's warehouse (title transfers on shipment) - FOB Destination: Recognise purchase only when goods arrive at buyer's location - Purchase on approval: Do not recognise until approval is given 5. Journal Entry (on recognition): Dr. Purchases A/c (or Inventory A/c) Dr. GST Input Tax Credit A/c Cr. Creditor / Accounts Payable A/c 6. Accrual vs Cash: Under mercantile accounting (mandatory for most companies), purchases are recorded on accrual basis — not when payment is made. |
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