if caplin gets 100 crores advance from customer
advance is by definition here recognized as a liability as you may have to pay back so it cannot be put in profit and loss statement
balance sheet-changes
asset-cash(100)
liability-obligation to pay it back(100)
profit and loss no change
when they sell whole thing they have say the distributor sells for 1000 crores and they owe caplin point 1000 crores
balance sheet
the 100 crores advance is nullified as there is no obligation to pay back the distributor
so the distributor gives back 900 crores(1000-100=900)
however the company has to recognize the advance cash it received earlier in the profit and loss statement so total profit is 1000 crores for caplin point
because it cannot keep the amount in balance sheet as there is no liability attached to it
read about profit and loss statement and balance sheet see the differences
correct me if i am wrong?
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