06-24-2011, 07:59 AM
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Shunmas</i>
<br />Asalam-o-Alaikum !
I am doing contract accounts from Sir M.A.Ghani's Advanced Accounting book.
Sir Ghani says that a contact account is basically a profit & loss account (from a contarctor's point of view). All expenses are debited and income credited.
That is fine, I understand this concept.
BUT the entry for purchasing raw material is
DR. CONTRACT A/C
CR. RAW MATERIALS A/C
Now why would we credit the raw materials?
Is it same like in general business that when we buy goods (perpetual inventory system), we debit inventory and then using transferring entries, we transfer the inventory to P & L ?
Is this concept is being followed in the above the Journal entry?
Thanks
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
walaikum salam..
Yes, your understanding is inline with general business concept. However, the double entry which you mentioned should be for consumption or issuance from stores and not purchase. Initially when the inventory is purchased, following entry would be made
DR. Inventory (raw material)
CR. Bank/Creditors
When consumption/issuance is made
DR. Contract a/c /cost/P&L
CR. Inventory.
<br />Asalam-o-Alaikum !
I am doing contract accounts from Sir M.A.Ghani's Advanced Accounting book.
Sir Ghani says that a contact account is basically a profit & loss account (from a contarctor's point of view). All expenses are debited and income credited.
That is fine, I understand this concept.
BUT the entry for purchasing raw material is
DR. CONTRACT A/C
CR. RAW MATERIALS A/C
Now why would we credit the raw materials?
Is it same like in general business that when we buy goods (perpetual inventory system), we debit inventory and then using transferring entries, we transfer the inventory to P & L ?
Is this concept is being followed in the above the Journal entry?
Thanks
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
walaikum salam..
Yes, your understanding is inline with general business concept. However, the double entry which you mentioned should be for consumption or issuance from stores and not purchase. Initially when the inventory is purchased, following entry would be made
DR. Inventory (raw material)
CR. Bank/Creditors
When consumption/issuance is made
DR. Contract a/c /cost/P&L
CR. Inventory.
