Ch 9 - Accounting for credit transactions Flashcards
What is a credit transaction?
When goods or services are supplied immediately, but are not paid for until a later date
What are credit terms?
Credit terms stipulate to customers the period of time in which they have to pay for the good/service previously provided and any discount terms offered to them
What does the credit term example 5/7 mean?
5% discount if paid within 7 days
What does the credit term example 2/14 net 30 mean?
2% discount if paid within 14 days, balance due within 30 days
What is an invoice and what are the types of invoice?
A business document used to provide evidence of a credit transaction
- Sales invoice
- Purchase invoice
What is a sales invoice?
Is used when goods are sold to credit customers, creates account receivable (current asset)
What is a purchase invoice?
Is received from another business when goods or services are purchased on credit. Create account payable (current liability)
When do you recognise a revenue if you provide a service on credit? Why?
After the service is fulfilled. This is because it is a liability until it is fulfilled.
What does accounts receivable mean?
Customers that owe you the business money
What does account payable mean?
Suppliers that you the business owe money to
What are credit purchases recorded in?
Purchases journal or sometimes accounts payable record
What transactions affect the GST debt of a business?
- GST collected by cash sales
- GST paid by cash payments
- GST charged to accounts receivable (credit)
GST charged to account payable (credit)
Summary: all credit and cash transactions
