Question

Aloka Innovative Business Solutions Pvt. Ltd, an HR outsourcing company based in Hyderabad provides temporary staff to ABC Management College, Hyderabad. The company entered into following transactions with ABC Management College and the hired employee. The company would provide an employee for the college at Rs.30000 per month. ABC Management College prepaid the amount for the period January to June 2015 in December 2014. The financial year for the company ends in December. Aloka pays salary of Rs. 20,000 to the employee one month late as per contract with the employee. How do you record the above transactions in the books of Aloka in the months of December and January? Conclude what are the benefits of the term of contracts they have entered with the two parties.

Answer 1

Transactions in the books of Alok innovative business solutions private ltd. for the month of December 2014 will be recorded as follows:

1.For prepaid receipt of Rs.30,000 per month for the services to be rendered in January to June 2015 recording through entry will be as follows:

Particulars	Dr	Cr
Bank A/c Dr To Advance receive from ABC management college A/c Dr (Being liability book for services yo be rendered in the month of January to June 2015)	Rs.90000	Rs.90000

2.Entry for accrued payment to employee I.e.salary which is for December 2014 but paid 1 month late I.e in January 2015:

Particularls	Dr	Cr
Salary expense A/c Dr To Outstanding SalaryA/c (Being expense booked and liability arises for December salary which will be paid in.January)	Rs.20,000	Rs.20,000

For above transactions entry in the month of January as follows:

1.For advance received revenue is book in January as belong to 2015 year entry for such transaction will be as follows:

Particulars	Dr	Cr
Advance receive from ABC management college A/c Dr To Revenue A/c (Being revenue booked against advances received in month of December 2014 for which services will be rendered in January to June 2015)	Rs.90000	Rs.90000

2.For payment of outstanding salary of the month of december entry will be as follows:

Particulars	Dr	Cr
Outstanding Salary A/c Dr To Bank A/c (Being outstanding salary paid for the month of December 2014)	Rs.20000	Rs.20000

Alok Innovative Solutions entered into contract with two parties first is ABC management college and other is employees for ABC MANAGEMENT COLLEGE Alok Ltd take advance for 3 months while in case of employees payment made one month late , due to this Alok innovative solutions private ltd has sufficient funds for working capital which results in growth and effective management of funds.