Question ID :
44904
Netting off Creditors with Debtors
Hi Team,
We have come to a situation where the client has raised the GST invoices and purchased the goods from the same party which was reflecting as purchase and sales in one side. On the other side, there was no cash/ bank transactions involved for such purchases and sales made whereas it was adjusted by a journal by netting of creditors with Debtors. Is it allowed as per the accounting standards?
And in the other case, Creditor's "A" balance of Rs. 1,00,000 has been adjusted with the Debtors "B" by posting a journal entry which impacts understament of assets and liabilities by Rs. 1,00,000. "A" and "B" are the not the same person.
Posted by
MANOJ V
on
Aug 02, 2025
Filed Under
AUDIT
Obtain confirmation from both parties to adjust the same. Otherwise you cannot net off. You have to receive and pay the amount.
Posted by
VINAY BHARGAV KUMAR G on
Aug 16, 2025
Answer ID :
86008
I would suggest you to analyse the case from the point of view of reporting requirements u/s143(1)(b) which talks about commenting on transactions represented merely by book entries being prejudicial to the interests of the company.
Ensure whether there is actually delivery of goods
Netting of the receivable and payable is a commercial consideration first and then an accounting one. Ensure there are agreements that mandate or require netting off.
AS would have to be checked if you want to present debtors and creditors on a net basis in the balance sheet.
Posted by
KUMAR RAISINGHANI on
Oct 15, 2025