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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Principles, Concepts and Conventions

Arvind Traders purchased goods worth Rs 60,000 in December and sold goods costing Rs 40,000 for Rs 55,000 on credit, with the money to be received in January. Under the accrual concept, what profit on this sale is recognised in December?

The profit recognised in December is Rs 15,000. Under the accrual concept, revenue is recorded when the sale is made, whether or not cash is received. Sale of Rs 55,000 less the cost of goods sold Rs 40,000 gives Rs 15,000.

  1. ARs 20,000
  2. BRs 15,000Correct
  3. CRs 5,000
  4. DNil, as cash is not yet received

Explanation

Under the accrual concept, revenue is recognised when earned, not when cash is received. Profit on the sale = 55,000 - 40,000 = Rs 15,000. Waiting for cash would give nil, which ignores accrual. Rs 20,000 wrongly uses the stock purchased (60,000) instead of the cost of goods sold.

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