Chapter 12 Trade Payables

Question 1

Define the term trade payables

Answer 1

-Trade payables refer to the amounts owed to suppliers when businesses buy goods and non-current assets on credit.

Question 2

Explain why businesses buy on credit instead of paying cash

Answer 2

-When a business buys goods and non-current assets on credit, it can receive the goods and non-current assets first and pay later. Thus, cash can be used for other operations of the business.

Question 3

Explain the differences between trade and cash discount.

Answer 3

-Trade discount is a reduction to the list price of goods while cash discount is a reduction to the invoice price of goods.

-Trade discount is given to encourage bulk purchase, customer patronage and customer loyalty while cash discount is given to encourage customers to pay early and promptly within a specific time.

-Trade discount is not recorded in the ledger while cash discount is recorded in the ledger as discount allowed or discount received.