Chapter 2: Credit Transactions Flashcards
Define a creditor.
A party (normally an individual, another business or a financial institution) to whom a business owes money.
What is a trade creditor?
What are trade payables?
A trade creditor is a party to whom a business owes money for trading debts.
In the accounts of a business, debts still outstanding which arise from the suppliers of materials, components or goods for resales are called trade payables.
How does a trade payable appear on the balance sheet?
A trade payable is a liability of a business. When the debt is finally paid, the trade payable disappears as a liability and the balance of cash at bank and in-hand decreases.
Define a debtor.
A party who owes money to the business.
What is a trade debtor?
What are trade receivables?
A trade debtor is a party from whom a business is owed money for trading debts.
In the accounts of the business, amounts owed by debtors are called trade receivables.
How do trade receivables affect the balance sheet of a business?
A trade receivable is an asset of a business. When debt is paid, the receivable ‘disappears’ as an asset, to be replaced ‘cash at bank and in hand’.
What is the accruals concept?
The accruals (or matching) concept requires that income earned is matched with the expenses incurred earning it.
