A trader has made a sale of Rs.75,500 out of which cash sales amounted to Rs.25,500. He is of the view that in the Financials Statements for the year, he shall show a sales of Rs 75,500 & trade receivables of Rs.50,000. Which concept is followed by him?
A trader has made a sale of Rs.75,500 out of which cash sales amounted to Rs.25,500. He is of the view that in the Financials Statements for the year, he shall show a sales of Rs 75,500 & trade receivables of Rs.50,000. Which concept is followed by him?
Explanation
The trader is following the accrual basis of accounting.
This concept recognizes revenue when it is earned, not necessarily when cash is received.
Hence showing the full sales amount and trade receivables in the financial statements.