Credi Purchases Flashcards
Why do businesses need to buy and sell on credit?
Not large enough cash. Cannot afford to pay for goods with cash
What are the different types of credit transactions?
Credit card transactions and credit on an open account
Who issues a credit card?
Bank to accountholder
What is a credit limit?
The bank allows the account holder to make purchases up to a certain limit
What happens when a person makes a purchase on the credit card?
The institution phone the bank for authorisation
How does the institution phone the bank for authorisation?
The credit card points that you find at Torpoint automatically contact the bank that issued the credit card and get electronic authorisation
Who does the bank pay?
Institution directly
What are credit card sales classified as?
Cash sales
Where are credit card sales recorded in?
Cash receipts journal
When does the bank issue the account holder a statement of account?
At the end of the month
How much must the accountholder pay?
Minimum amount of balance which is usually 5% before a certain date
What happens if there is extra credit balance remaining on the credit card?
Charged interest on a monthly basis
What is a credit card sale considered as to the seller?
For the seller, a credit card sale is considered a cash transaction as they get paid directly by the bank.
What is a credit card sale considered as to the buyer?
For the buyer, it is a form of credit transaction although it will not be recorded in the creditors journal.
What happens if there is a balance on the card?
so if there is a balance on the card, the accountholder may only spend the difference between that balance and his credit limit
When is the best time to pay off the balance?
At the end of the month
Why is it beneficial to pay at the end of the month?
Benefit of being able to ‘buy now and pay later.’ not charged interest by the bank. living within your means and not over-extending yourself!
What is a common form of credit transaction?
Credit on open account
What is credit on open account?
One business (the seller) agrees to grant the buyer a certain time to repay the purchase
What are the time periods for credit on open account?
30, 60 or 90 days
What does the time periods mean?
Buyer must pay for the goods 30 days (or 60 or 90) after the purchase.
What will the seller do if they buy pays before time period ends?
Seller will give the buyer an incentive and offer a discount if the full amount is repaid within the time period allowed.
What can’t sellers obtain credit without?
Without real security
What does the the better the buyer’s credit history with the seller mean?
the better the buyer’s credit history with the seller, the longer the time the buyer will be granted to repay his debt.
When does a bank overdraft occur?
Bank allows it account holder to spend more money than he has available in his current account
What does the bank charge for when there is a bank overdraft?
Compound interest
What do we regard the bank account as with a credit balance?
Liability
How many different discounts are there?
Three
Name the different discounts
- Cash discount
- Trade discount
- Bulk discount
Define cash discount
The buyer gets a discount for paying cash
Define trade discount
This discount is granted by one business to another on goods for the purchase of resale. Good that will be used as trading stock
Define bulk discount
A business buys in bulk, the seller will often reduce the price per item
What is the source document for a credit purchase?
Original credit invoice
What is the source document used when the business pays off its date to the creditor?
Bank statement
What is the source document used when we return an item to a creditor?
Duplicate debit note/original credit note
What journal is used for a credit purchase?
Creditors journal
What journal is used when the money is paid to the creditor?
Cash payments journal
Where are creditors allowance recorded?
Creditors allowance journal
Where are the journals posted to?
Debtors ledger
Where do creditors transactions come from in the general ledger?
CJ, CPJ, CAJ
Defime creditors
Business owes money to person or company it purchased products from
What type of account is creditors?
Liability
Why do business renumber their invoices?
Easier to refine
What does the creditors journal record?
Credit purchases
When are entries made in the CJ?
Daily basis
What happens when there is a trading discount in the CJ?
Deduct trade discount the enter balance in creditors control and trading stock
How is payment to a creditor made?
Internet transfer
Where is a payment to a creditor made?
Cash payments journal
What happens to creditors control in the accounting equation?
Decreasing (debit) owe less money
What happens to bank in the accounting equation?
Decrease (credit) money is paid out
Define creditors allowance
Goods and items purchased on credit can be returned to the supplier for various reasons
What is the journal called that is used to return credit purchases?
Creditors Allowance Journal
When a business pays its creditors amount owing, what happens?
EFT in Creditors control column - cpj
What happens to creditors control column when money from CPJ is entered?
Debited
What happens to the Creditors Control in the general ledger?
Liability - credit
What happens to the credit that occurs in the bank account?
Total Payments figure
What is the credit return transaction in the general ledger?
Exactly opposite of credit purchase transaction
