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Receivables are accounted for in the balance sheet when the turnover is booked and the sale proceeds are yet to be received by the company. As receivables is attached to sale price, these are booked at sale price in the balance sheet which also includes the element of profit margin.
While stock purchases are made, as a result of the double entry system, the purchase value is entered both in the B/s as well as P & L a/c and hence it is valued at cost. However, if the value of stock is below the purchase price then the stock is to be revalued to reflect the net realizable value of the stock.
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A conservative approach to book minimum of value....this approach require reader to read the statements very carefully while doing financial analysis of the company.
The conservatism principle and a specific accounting pronouncement, Accounting Research Bulletin No. 43 (ARB No. 43) leads to an accounting valuation method known as the lower of cost or market, or LCM. In this method the term "market" includes both the market in which the company purchases its merchandise as well as the market in which it sells its merchandise. .
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Stock is completely different than receivables.
Receivables is what is owned to a company from its sales and includes profit margin and all costs related to thee production of a good ot service.
Stock now can be either raw materials for a manufacturing company which need further processing or it can be finished good for reselling for a commercial company. In either way, ir involed only the cost of purchase and not any other direct or indirect cost (labor, administration, marketing etc) which are related to the total cost that needs to be covered in order for a compaany to conrinue running business.
agree with Mr. Sai,
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