The following transactions occurred in ADA Enterprises in January 2019:
January 2: Ada sold goods for ₦20,000 by cash to a customer. The customer pays ₦20,000 cash for the goods to the business enterprise.
January 4: Ada bought goods on credit from Citrus Limited for ₦35,000.
January 6: The office staff sold goods for ₦45,000 cash to a customer.
January 9: The office staff sold goods for ₦25,000 on credit to Mr. Big.
January 29: Ada paid a salary of ₦10,000 by cash to office staff.
How should the transactions be recognised using a cash basis?
Suggested answers to practice activity 3.1
The transactions should be treated, as follows:
January 2: Since the customer paid cash for the goods, the money received amounting to ₦20,000 should be recognised in the books of account as revenue.
January 4: The transaction with Citrus Limited should not be recognised in the books of account as an expense because ADA Enterprises bought goods on credit from Citrus Limited.
January 6: The transaction with a customer should be recognised in the books of account as revenue because it sold them for cash.
January 9: The transaction should not be recognised in the books of account as revenue because the goods were sold on credit to Mr. Big.
January 29: The transaction should be recognised in the books of account as an expense because the salary was paid using cash.
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