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CMA Intermediate · Financial Accounting · Accounting Fundamentals

Patel & Co. received Rs 90,000 in March 2026 as advance for goods to be delivered in May 2026. The firm credited Sales in the year ended 31 March 2026. Applying the realisation concept, what adjustment is needed to the year ended 31 March 2026?

Sales must be reversed because revenue is realised only on delivery in May 2026. Debit Sales Rs 90,000 and credit Advance from Customers Rs 90,000, showing the amount as a current liability at 31 March 2026 rather than as income.

  1. ADebit Sales Rs 90,000 and credit Advance from Customers Rs 90,000Correct
  2. BDebit Cash Rs 90,000 and credit Sales Rs 90,000
  3. CDebit Advance from Customers Rs 90,000 and credit Sales Rs 90,000
  4. DDebit Sales Rs 90,000 and credit Debtors Rs 90,000

Explanation

Revenue is recognised when goods are delivered or the sale is effected, which has not happened by 31 March 2026. The advance is a liability. Reverse the sales credit: Sales Dr 90,000, Advance from Customers Cr 90,000. Option C would overstate sales further.

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