Chapter 9: Credit Transactions Flashcards
Credit Transaction
When a service is performed or goods are exchanged but the cash relating to the transaction is not exchanged until some later date, meaning the customer owes a debt to the provider/seller
Cash Transactions
Where the goods/services and cash are exchanged at the same time
Sales invoice
A source document that verifies a credit sale of inventory
Purchase invoice
A source document that verifies a credit purchase (usually of inventory)
Accounts Receivable
A customer who owes a debt to the business for goods or services sold to them on credit
Credit Purchase
A transaction that involves the acquisition of materials or supplies (or other goods) from a supplier who does not require payment until a later date
Purchases Journal
An accounting record that summarises all transactions involving the purchase of materials or supplies on credit
Explain why there is no GST to account for when cash is paid to an accounts payable
There is no GST on a payment to an Accounts payable because the GST is recognised and reported at the time the purchase was made and becomes a part of what is owed to Accounts Payable.
The GST has already been recorded in the purchases journal. If it was recorded in the Cash Payments Journal again, the GST would be double-counted
Explain why cash received from an Accounts Receivable is not classified as revenue
Desipte the cash receipt being an inflow of economic benefits, it does not increase assets and it does not lead to an increase in Owner’s Equity.
The firm’s assets would increase, in the form of cash at bank, however it will also decrease assets in the form of Accounts receivable.
Therefore there is no overall effect on Assets or Owner’s Equity and therefore cannot be classified as revenue.
Credit Fee
A transaction that involves the provision of a service to a customer who is not required to pay until a later date
Sales Journal
An Accounting record that summarises all transactions involving the sale/performing of services on credit during a reporting period
Accounts receivable formula
Accounts Receivable balance at start
+ Credit Sales incl. GST
- Receipts from Accounts
Receivable
-Discount expense
-Bad debt
= Accounts Receivable balance at end
State two Source documents that can be used to verify cash received from an Account receivable
- Cash receipt
- Cash Receipts Journal
What is the Statement of Account
A summary of a number of transactions involving that Account receivable or Account Payable over a certain period.
The Statement of Account is not a source document that must be recorded, and instead may serve as a reminder to pay the Account Payable the balance owing.
