Question

During The Financial Year 2019-20. Ashok had cash sales of 1,80,000 and Credit Sales Of 1,20,000. His Expenses for the year was 140,000 out of which 60,000 is still to be paid. Find out the ashok's income for 2019-20 following the cash basis of accounting.

Answer 1

ANSWER :

• ❖ If during the financial year 2019-20, Ashok had cash sales of Rs. 1,80,000, Credit Sales Of Rs. 1,20,000 and his Expenses for the year was Rs. 140,000 out of which Rs. 60,000 is still to be paid; then Ashok's income for 2019-20 following the cash basis of accounting will be Rs. 1,00,000.

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SOLUTION :

❒ Given :-

• Cash Sales by Ashok during the year 2019-20 = Rs. 1,80,000

• Credit Sales by Ashok during the year 2019-20 = Rs. 1,20,000

• Total Expenses Incurred by Ashok = Rs. 1,40,000

• Amount to be Payable by Ashok out of the Total Expenses = Rs. 60,000

❒ To Calculate :-

• Income of Ashok during the year 2019-20 under Cash Basis of Accounting= ?

❒ Calculation :-

• ★ Method : Cash Basis of Accounting

Here,

• Inflow of Cash = Cash Sales

➨ Inflow of Cash = Rs. 1,80,000

And,

• Outflow of Cash = Total Expenses - Outstanding Expenses

➨ Outflow of Cash = Rs. 1,40,000 - Rs. 60,000

➨ Outflow of Cash = 80,000

Now,

• ✪ Inflow of Cash during the year 2019-20 = Rs. 1,80,000

Less : Outflow of Cash during the year 2019-20 = Rs. 80,000

• ∴ Net Income during the year 2019-20 = Rs. 1,00,000

Hence,

• ✎ Income of Ashok during the year 2019-20 = Rs. 1,00,000.

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NOTE :-

• ✠ Credit Sales and Outstanding Expenses will not be considered under Cash Basis of Accounting.

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KNOW MORE :

❍ Cash Basis of Accounting :-

• ➻ Cash basis of accounting is a method of accounting in which only the cash transactions are recorded in the books of account. In other words, transactions are recorded in the books of account in the accounting year in which case is actually received or paid under cash basis of accounting.

• ➻ Only those transactions which give rise to receipt or payment of cash including banking transactions are recorded in the books of accounts and no record is made for any amount which is due or accrued under this method.

• ➻ Under the cash basis of accounting, profit is equal to the difference between the cash receipts and cash payments relating to revenue items during a given financial period.

• ➻ Units with cash transactions prefer under this basis of accounting.

• ➻ Accurate profit or loss can not be ascertained under cash basis of accounting.

• ➻ Application of the cash basis of accounting usually doesn't required technical knowledge.

• ➻ Cash basis accounting is generally used by professionals rendering service such as doctors, lawyers, Chartered accountants etc. for determining the net income.