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Kindly explain why 10million was subtracted from revenue and 10 million was added to loan .
And 7 million added to inventory, 7million subtracted from cost of sales
Thankyou.This appears to be (without looking at the question) a sale that isn’t really a sale – its a secured loan. There is an example in the free course notes where a company sells millions of gallons of whisky to a bank with the option / obligation to buy it back after a number of years during which the whisky is maturing.
If you “sell” your house to a mortgage company but you retain the right to buy it back, have you really sold it? Have substantially the whole of the risks and rewards of ownership been transferred to the mortgage lender?
No!
And that’s what’s happening with the company in your question. They have “sold” for 10 million goods that cost 7 million with a right to buy them back some time in the future. No sale! Just a secured loan!
So, debit revenue, credit loan account 10 million and bring the goods back into inventory by debit inventory on the balance sheet and credit cost of sales
Have you downloaded the free course notes and listened to the lectures on this site?
Ok?
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