11. Receivables

Question 1

Cash and credit sales:

1. How do we post a cash sale?
2. How do we post a credit sale? (2)
3. What are the advantages of providing credit facilities? (3)
4. What are the disadvantages of providing credit facilities? (3)

Answer 1

1. Dr cash, Cr sales
2. Dr receivables, Cr sales
   Cr receivables, Dr cash
3. • gain trust with new customers
     - increase saels
     - enter new markets
4. • loss of income through interest
     - potential irrecoverable debts
     - potential cash flow problems

Question 2

Aged receivables analysis:

1. What is an aged receivables analysis?
2. What are the purposes of aged receivables analysis? (2)
3. Why do businesses set credit limits? (3)

Answer 2

1. Report which shows how much each individual customer owes and how old their debts are.
2. • To chase overdue debts
     - To collect debts timely to improve cash flows
3. • To minimise risk
     - To build healthy relationships
     - As part of their credit control strategy.

Question 3

Irrecoverable debts and allowances

1. How do you post an irrecoverable debt?
2. How do you recover an irrecoverable debt?
3. How do you post an allowance?
4. How are irrecoverable debts and allowance displayed? on which statement?
5. What accounting concept are they linked to?

Answer 3

1. Dr irrecoverable debts, Cr receivables
2. Dr cash, Cr irrecoverable debts
3. Dr irrecoverable debts, Cr allowance for receivables
4. Allowance is a credit balance netted off irrecoverable debts on the statement of financial position.
5. Prudence

Question 4

What are the steps in completing the receivables ledger? (6)

Answer 4

1) write off irrecoverable debts
2) calculate receivables adjusted
3) sort out allowance for receivables
4) compare to b/f
5) account for the change in allowance
6) deduct allowance from receivables

Question 5

What amount will the profit or loss show in regards to allowance for receivables if there is a balance brought forward?

Answer 5

Movement, not total.