Chapter 5 - Part 2

Question 1

Settlement discount definition

Answer 1

a reduction in the amount paid by a credit customer in return for early repayment

Question 2

Discount Revenue Defintion

Answer 2

A revenue in the form of a decrease in liabilities (AP) and an increase in owner’s equity, earned when AP are paid early and a settlement discount is given by the supplier.

Question 3

What are the entries for a transaction for a discount revenue?

Answer 3

AP - Name DR
Bank CR
Discount Revenue CR

Question 4

Statement of Account definition

Answer 4

a summary of transactions a business has had with a particular Account Payable (or AR) over a certain period of time (usually a month)

Question 5

How is Account Payable Turnover Calculated

Answer 5

Average AP/ Net Credit Purchases (plus GST) *365
= Average Number of Days