Question

On November 15th, Company X sells $2 million of jewelry that costed them $750,000 to Company Z with 30 day terms. What happens to Company X's balance sheet and income statement on November 30th? What happens to Company X's income statement and balance sheet when Company Z pays them the $750,000 in December?

Answer 1

When Company X sells $ 2 million of jewellery that costed them $ 750000 with 30 days term,

In balance sheet, Jewellery amount will be reduced by $ 2 million. long term capital gain will be charged on jewellery on amount ( $ 2million- $ 750000), Debtors will increase by $ 2 million.

Income statement - no treatment

When Company Z pays $ 750000 to Company X in December i.e. within credit period of 30 days from November 15th,

In Company X Balance sheet, Sundry Debtors amount will be reduced by $ 750000, Cash will increase by $ 750000

In Company X ;s Income statement , no treatment