Chapter 7 - Receivables and Payables

Question 1

When is sales revenue recognized?

Answer 1

When the business dispatches the goods or provides services to the customer

Question 2

What is a credit sale?

Answer 2

a sale which is recognised as a sale before the cash is received.

Question 3

What are the costs of providing credit facilities?

Answer 3

1. interest costs of an overdraft, if not paid promptly
2. costs of trying to obtain payment
3. court costs

Question 4

What is an irrecoverable debt?

Answer 4

A debt which is not expected to be paid.

Question 5

How are irrecoverable debts accounted for?

Answer 5

1. sales are shown at their invoice value in the SOPL
2. the debt is shown as an expense in the SOPL
3. a credit entry removes the receivable from the receivables account.

Question 6

What happens if an irrecoverable debt is paid?

Answer 6

it is marked as a debit in the cash account and a credit in the irrecoverable debts expense account

Question 7

What is a provision for irrecoverable debt?

Answer 7

an estimate of the percentage of debts that are not expected to be paid.

Question 8

How is a provision for irrecoverable debts accounted for?

Answer 8

1. provision is charged as an expense in the SOPL
2. if the provision increases it is recorded as an expense
3. if the provision reduces it is credited to the SOPL

Question 9

What is the value of trade receivables in the SOPL?

Answer 9

the value of trade receivables in the statement of financial position is after deducting the provision.

Question 10

How is the provision treated in the SOPL?

Answer 10

The movement on the provision is debited or credited to irrecoverable debts in the SOPL

Question 11

What is a contra entry?

Answer 11

when you owe a business money and they owe you money and you agree to offset it so that only the difference remains.