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CMA Foundation · Fundamentals of Financial and Cost Accounting · Adjustment Entries and Rectification of Errors

Gupta Enterprises received ₹36,000 on 1 October 2025 as commission for 12 months ending 30 September 2026, and credited the whole amount to Commission Received Account. The books close on 31 March 2026. The adjusting entry and the commission income for the year ended 31 March 2026 are:

Commission earned for the year is ₹18,000. Six of the twelve months have elapsed, so ₹18,000 is unearned and is transferred by debiting Commission Received and crediting Commission Received in Advance, a liability carried to the next year.

  1. ADebit Commission Received ₹18,000; credit Commission Received in Advance ₹18,000; income ₹18,000Correct
  2. BDebit Commission Received ₹30,000; credit Commission Received in Advance ₹30,000; income ₹6,000
  3. CDebit Commission Accrued ₹18,000; credit Commission Received ₹18,000; income ₹54,000
  4. DDebit Commission Received ₹18,000; credit Commission Received in Advance ₹18,000; income ₹36,000

Explanation

Commission of ₹36,000 covers 12 months, i.e. ₹3,000 a month. From October to March is 6 months = ₹18,000 earned; the remaining 6 months = ₹18,000 is unearned. Debit Commission Received and credit the unearned (advance) liability with ₹18,000. Income is therefore ₹18,000, not ₹36,000.

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