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Mohan the owner of a business receives an order for the supply of good worth RS 2,00,000. He has also received RS 25,000 against this order. Mohan wants to record it as a sale. Is Mohan correct in doing so?
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Mohan the owner of a business receives an order for the supply of good...
Can Mohan Record the Order as a Sale?
- Understanding the Concept of Sale: In commerce, a sale occurs when goods or services are exchanged for money or other consideration. The transaction is complete only when the payment is received in full.
- The Order vs. the Payment: In this case, Mohan has received an order for the supply of goods worth RS 2,00,000 but has only received RS 25,000 against the order. This means that the transaction is not complete, and Mohan cannot record it as a sale until he receives the full payment.
- Accrual Accounting: In accrual accounting, revenue is recognized when it is earned, regardless of when the payment is received. However, in this case, the revenue cannot be recognized until the payment is received in full.
- Matching Principle: The matching principle states that expenses should be recognized in the same period as the revenue they help generate. If Mohan records the order as a sale, he will have to recognize the cost of goods sold (COGS) as an expense even though he has not received the full payment. This would violate the matching principle.
- Conclusion: Based on the above analysis, Mohan cannot record the order as a sale until he receives the full payment.
Community Answer
Mohan the owner of a business receives an order for the supply of good...
Yes, I think it is correct because Mohan had received order means he will be selling the goods on credit so it will be written in sales book.
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Mohan the owner of a business receives an order for the supply of good worth RS 2,00,000. He has also received RS 25,000 against this order. Mohan wants to record it as a sale. Is Mohan correct in doing so?
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Mohan the owner of a business receives an order for the supply of good worth RS 2,00,000. He has also received RS 25,000 against this order. Mohan wants to record it as a sale. Is Mohan correct in doing so? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Mohan the owner of a business receives an order for the supply of good worth RS 2,00,000. He has also received RS 25,000 against this order. Mohan wants to record it as a sale. Is Mohan correct in doing so? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Mohan the owner of a business receives an order for the supply of good worth RS 2,00,000. He has also received RS 25,000 against this order. Mohan wants to record it as a sale. Is Mohan correct in doing so?.
Mohan the owner of a business receives an order for the supply of good worth RS 2,00,000. He has also received RS 25,000 against this order. Mohan wants to record it as a sale. Is Mohan correct in doing so? for Commerce 2024 is part of Commerce preparation. The Question and answers have been prepared according to the Commerce exam syllabus. Information about Mohan the owner of a business receives an order for the supply of good worth RS 2,00,000. He has also received RS 25,000 against this order. Mohan wants to record it as a sale. Is Mohan correct in doing so? covers all topics & solutions for Commerce 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Mohan the owner of a business receives an order for the supply of good worth RS 2,00,000. He has also received RS 25,000 against this order. Mohan wants to record it as a sale. Is Mohan correct in doing so?.
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