Question

Vijay made Rs. 3,50,000 as cash sales and R.50,000 as credit sales. He incurred an expense of Rs.1,70,000 out of which Rs.40,000 are outstanding. He also received advance relating to next year of Rs.45,000. Cash basis Accrual basis

Answer 1

Explanation:

cash basis: Total amount of cash received and paid for the period is taken. No adjustment needed for outstanding or advance receipt or payment to be made.

Receipt - 350000+45000 = 395000

Payment - 130000+20000 = 150000

Income - 395000-150000 = 245000

Accrual basis: Here all the adjustments are to be made and only the actual amount for the period to be taken for calculation of receipt and payment. Prior period adjustments are not required.

Receipt - 350000+50000 = 400000

Payment - 130000+40000 = 170000

Income - 400000-170000 = 230000