Question

Q7. Mr. Q started his own business.   As it is a very small business with little investment and very less transactions, he does not want to hire any employees to record the transactions happening in the business. As he is not from an Accounting background, he finds it very difficult to understand how to classify the transactions and record. Some transactions are given to you to help him classify transactions category under A) Current Assets B) Current Liabilities C) Long term liabilities D) Long term Assets E) Contingent Liability. You are also required to guide him how you have classified a particular transaction by giving suitable reasons in the books of both the parties.

i) Suppose Mr. A has purchased goods for using it in manufacturing from Mr. B on credit for   

     RO 6000.

ii) Mr. Q’s company borrowed money from Bank Muscat promising to repay it after 3 years.

iii) A Promised to deliver the goods to Mr.Z on June 1^st 2021. Mr. Z paid the cash of RO. 2500

     before the goods were delivered to him.

iv) Mr. Q is working part time in ABC ltd. He did not receive the salary for the month of June.

v) Mr. A’s company sold goods to Mr. Ali on credit basis of RO 1650 and later the same has

     been changed from credit into Note.                   

Answer 1

i) Goods purchased by Mr. A on credit i.e. payable to Mr. B - Current Liabilities

For Mr. B, Goods sold on credit i.e. receivables from Mr. A - Current Assets.

ii) Loan borrowed by Mr. Q for 3 years, since repayment period is more than 1 year it's become long term - Long term liabilities.

iii) For Mr. Q, Service given, amount receivable - Current Assets.

For ABC Ltd, salary payable to Mr. Q - Current Liabilities

iv) For Mr. A, Goods sold on credit to Ali, Ali become debtor to Mr. A - Current Assets

For Ali, amount payable to Mr. A - Current Liabilities

Note that conversion of credit into note does not change the classification.