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I tutor, I have another question.The query has been taken from Bpp.
This question is not even related to Principal and agent.I became stuck in this question.Could you help me provide me extended explanation?
In p/l they added other income but it belong to agent not principal why?absolutely became confused.Revenue includes an amount of $20 million for cash sales made through XTol’s retail outlets during the year on behalf of Francais. Xtol, acting as agent, is entitled to a commission of 10% of the selling price of these goods.By 31 March 20X4, Xtol had remitted to Francais $15 million (of the $20 million) and recorded this amount in cost of sales.
Answer
Did
Debit cash-20000
credit revenue-20000
debit cost of sales-15000
credit cash-15000
should have been
Debit cash-20000
credit-other income-2000
credit-trade payabledebit trade payable-15000
credit cash-15000correction
Debit revenue-20000
credit cost of sales-15000
credit other income-2000
credit trade payable-3000Revenue (490000-20000)-here they deducted the whole sale amount
Cost of sales -294600
gross profit-175400
distribution cost-(33500)
administrative expense-(36800)
other income-2000 but here they added to make it 18000I think i understood correctly?
If this is your effort …
correction
Debit revenue-20000
credit cost of sales-15000
credit other income-2000
credit trade payable-3000… I agree with what you have done
If it is not your effort, then it should be because this is correct
The 20,000 is correctly deducted from revenue, 15,000 correctly deducted from cost of sales, 2,000 correctly added in to “other income” and we still owe the principal the 3,000 that we have received but not yet paid over
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