State which accounting principle is applied here and why?
discount allowed to debtors
commission received in advance
Dear Student,
For discount allowed on debtors, Matching Principle is applied stating that whenever revenue is recorded , the related cost/expense must also be recorded. So when we record credit sales as debtors in the form of revenue, Discount allowed on debtors has to be recorded as expense.
For Commission received in advance, Accrual principle is applied stating that only those transactions should be recorded in the accounting period which are actually incurred , rather than recording them on the basis of cash flow. Since Commission received in advance do not actually incur in the current accounting period & so basis this principle it would be recorded as advance & would not impact current years' revenue.
Regards,
For discount allowed on debtors, Matching Principle is applied stating that whenever revenue is recorded , the related cost/expense must also be recorded. So when we record credit sales as debtors in the form of revenue, Discount allowed on debtors has to be recorded as expense.
For Commission received in advance, Accrual principle is applied stating that only those transactions should be recorded in the accounting period which are actually incurred , rather than recording them on the basis of cash flow. Since Commission received in advance do not actually incur in the current accounting period & so basis this principle it would be recorded as advance & would not impact current years' revenue.
Regards,