Mr. Ram and Sons, a dealer in kitchen cookware products, has received an order for 15 Electric cookers along with an advance of Rs. 10,000. It maintains its accounts on accrual basis of accounting. Should, Rs. 10,000, the amount received be credited to the sales account or the advance received account? Justify.
According to the accrual basis of accounting system, income is recorded as income when it is earned or accrued. Here, accrued income or incomes received in advance are recognised for ascertaining correct profit or loss for the accounting period. Hence, Rs. 10,000 should be credited to the advanced received account and then transferred to the account of purchaser on affecting sale.
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