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what is the logic in the entry

karthi sabapathi (student) (173 Points)

31 December 2009

Hi, Please expain...

for distribution of goods as sample pieces to customers , we pass the following entry.

Advertisment expenses Dr

To Purchase a/c

why we credit the Purchase a/c? Giving sample means it should be a finished goods, it can not be a raw material.. In this case we have to credit the Stock a/c .

Crediting Purchase a/c means, Purchase raw material and give it as sample.. ? Please explain.

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24 Replies

CA Dhiraj Ramchandani (CA, M. com) (10823 Points)
Replied 31 December 2009

I've never passed such entry for free samples... We alwz debit "goods given as free samples" and credit to "sales" account... thereafter we deduct stock reserve (profit element) from that sales

Rahul (CA Practice ) (1818 Points)
Replied 31 December 2009

For free samples credit note is issued by customers

vanisri (Chartered Accountant) (456 Points)
Replied 31 December 2009

If you credit to sales, it will affect your sales tax also. Better to reduce in stock only.

karthi sabapathi (student) (173 Points)
Replied 31 December 2009

thanks for all

ROHIT (ACCOUNTS MANAGER) (96 Points)
Replied 31 December 2009

Advertisment expenses Dr
To Purchase a/c
for example you are soap manufacturer.
you will provide sample soap to your customer
not the raw-material used in making soap.
and soap you gave your customer is not for profit.
so purchase account is credited instead of sales.
if profit was included it was sales. Because
sales=purchases+profit margin
if my logic was incorrect please rectify it friends

venkatesh patil (Article Assistant) (27 Points)
Replied 31 December 2009

hey guys then what will be the entry for gifts which the seller will give as free.... like DVD with TV

(Guest)

I agree with Mr Raj....

Vishnu Nair (Chartered Accountant) (935 Points)
Replied 31 December 2009

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Rahul Ramesh (CA Final, BCom, MBA) (1084 Points)
Replied 31 December 2009

Originally posted by : Faiz
	I agree with Mr Raj....

Arun Kumar (Deputy Manager Assurance) (230 Points)
Replied 01 January 2010

Hi Karthik,

The sequence of transactions for goods given as free samples is as follows

1. Purchase of Raw materials

Purchases A/c Dr.

To Supplier / Cash / Bank

2. Further Manufacture of Products by incurring additional costs

Wages / Factory Overheads A/c Dr

To Cash / Bank / Wages outstanding

3. Goods Manufactured

Cost of goods produced A/c Dr

To Purchase

To Wages

To Factory OH

4. So for gooods given as sample the entry should be

Advertisement A/c Dr.

To Cost Of Goods Produced

But theoritically speaking we never pass entry no.3 above otherwise than for costing purposes. Hence theoritically the entry will be

Advertisement A/c Dr.

To Purchases

However the net effect will be same. Hope my view is correct. Do send ur suggestions / rectifications

ajay lohiya (article) (69 Points)
Replied 01 January 2010

i agery with Mr. Raj

sasmitha (Practise in Raipur) (65 Points)
Replied 01 January 2010

arun sir is right .the whole entry is explained in logical manner

Gourav Kapoor (CA Final Student) (2977 Points)
Replied 01 January 2010

agree wd both arun sir and raj sir !

Manmohan ACA, CS (Chartered Accountant ) (14243 Points)
Replied 01 January 2010

Originally posted by : karthi sabapathi
	Hi, Please expain... for distribution of goods as sample pieces to customers , we pass the following entry. Advertisment expenses Dr To Purchase a/c why we credit the Purchase a/c? Giving sample means it should be a finished goods, it can not be a raw material.. In this case we have to credit the Stock a/c . Crediting Purchase a/c means, Purchase raw material and give it as sample.. ? Please explain.