Ch 11 - Receivables

Question 1

What are the double entry is when a customer pays cash for goods and services at the point of sale?

Answer 1

DR cash

CR sales

Question 2

When is the sale on credit terms recorded?

Answer 2

The sale is recorded in the ledger accounts when the right to income is earned.

This is usually the point at which the goods or services are delivered

Question 3

What is the double entry for sales on credit?

Answer 3

Initial entry:
DR receivables 
CR sales 
When the customer settles the account:
DR cash
CR receivables

Question 4

What are the benefits of selling to customers on credit?

Answer 4

Customer loyalty
Possibility of increased sales
Enter new markets

Question 5

What are the costs of selling to customers on credit?

Answer 5

Loss of interest by accepting payment later
Cash flow may decrease
Potential of irrecoverable debts

Question 6

What if customers cannot or will not pay outstanding debts?

Answer 6

Debts are known as irrecoverable debt and must be written or by removing them from the ledger accounts.

Sometimes an allowance is created for debts that may be recovered

Question 7

What is the double entry to recording irrecoverable debts?

Answer 7

DR irrecoverable debts expense a/c
CR receivables

the amount is expensed to profit or loss account

Question 8

What is the double entry for recording irrecoverable debts that have been recovered?

Answer 8

DR cash
CR irrecoverable debts expense a/c

recovered debt cannot be taken to receivables because it was already removed

Question 9

What is the double entry for allowance for receivables?

Answer 9

DR irrecoverable debts expense

CR allowance for receivables

Question 10

Steps to be taken when calculating and accounting for movement in the allowance for receivables?

Answer 10

1. Write off irrecoverable debts
2. Calculate the receivables balance as adjusted for the write-offs
3. Ascertain the allowance for Receivables required
4. Compare to this brought forward allowance
5. Account for the movement in allowance to determine the expense or credit to the statement of profit or loss
6. Deduct the closing allowance for receivables from the receivables balance in the financial statements