Unit 2 14: Accounts receivable for a trading business

Question 1

Credit Sale

Answer 1

The provision of inventory to a customer who is note required to pay until a later date

Question 2

Accounts receivable record

Answer 2

A subsidiary accounting record that details each individual transaction with each individual account receivable and shows the balance owed by that accoutn receivable at any point in time

Question 3

Accounts Receivable Schedule

Answer 3

A listing of the name and balance of each accounts receivable record

Question 4

Discount expense

Answer 4

An expense in the formof a decrease in assets (accounts receivable) and owner’s equity, incurred when cash is received from accounts receivable and a settlement discount is given by the business

Question 5

Bad debt

Answer 5

An expense incurreed when a debt is written off because it is deemed to be irrecoverable

Question 6

Referring to one accounting assumption, explain why credit sales are recognised as revenue

Answer 6

According to the Accrual bassi assumption, credit sales are recognised as revenue in the period in which the sale is made, as this is when the revenue is earned.

Question 7

Role of sales journal for a trading business

Answer 7

An accounting record that summarises all transactions involving the sales of materials or supplies on credit

Question 8

Source document used to verify all transactions in the sales journal

Answer 8

Sales invoice

Question 9

Qualitative characteristics for the inclusion of bad debts in accounting reports

Answer 9

Faithful representation
Relevance

Question 10

Benefits of granting discounts to accounts receivable

Answer 10

Cash is received faster, meaning it can be used to make other payments

Possibility of bad debts is reduced

Question 11

Costs of granting discounts to accounts receivable

Answer 11

Less cash is received from accounts receivable

Net profit is decreased as the discount incurred is an expense