You work for Entertainment Supplies Pty Ltd – a supplier of entertainment produc
ID: 2328788 • Letter: Y
Question
You work for Entertainment Supplies Pty Ltd – a supplier of entertainment products to the industry. The following transactions relate to dealings with Fairy Floss Trading Pty Ltd over the month of August 2015. At the start of August, this debtor already owed $200.
Purchases
Aug 2 Invoice 765 $120 plus $12 GST
Aug 9 Invoice 791 $160 plus $16 GST
Aug 15 Invoice 823 $140 plus $14 GST
Aug 24 Invoice 845 $200 plus $20 GST
Aug 30 Invoice 891 $180 plus $18 GST
Payments (Cash)
Aug 4 Cheque 8912 $200
Aug 14 Cheque 8922 $250
Discount Received $10
Aug 29 Cheque 8937 $310 Discount Received $15
You are to:
Prepare the debtors record for Fairy Floss Trading Pty Ltd, showing all transactions
during the month of June 2015
Explain how reliability has been satisfied in your debtors record
State one benefit of the debtor taking advantage of discounts for prompt payment
State one disadvantage for your debtor making a prompt payment in order to get a
discount
Explanation / Answer
the sale price but it may mean more business overall.
State one disadvantage for your debtor making a prompt payment in order to get a
discount
From this system of cash discounts, arose a custom widely indulged in by buyers, who, preferring not to take advantage of the discount period offered them by sellers, deduct their discount in any event, notwithstanding the fact that they overran the period of credit granted them. On account of close competition in trade, sellers are often inclined to permit this practice, thus allowing the buyer to gain an unfair advantage over them.
Debtors Control Account Date Particulars Amount Date Particulars Amount Aug To Bal B/D $200 4-Aug By bank-cheque 8912 $200 2-Aug To Credit Sales -Invoice 765 14-Aug By bank -cheque 8922 $250 $120 Plus $12 GST $132 By Discount Received-Allowed $10 9-Aug To Credit Sales -Invoice 791 29-Aug By bank-Cheque8937 $310 $160 plus $15 GST $175 By Discount Received-Allowed $15 15-Aug To Credit Sales-Invoice 823 $140 plus $14 GST $154 31-Aug By Bal C/D $294 24-Aug To Credit Sales -Invoice 845 $200 Plus $20 GST $220 30-Aug To Credit Sales-Invoice 891 $180 Plus $18 GST $198 Total $1,079 Total $1,079 It is found that the invoices for every period is being raised against the credit sales along with GST But the payment against those credit sales are not very promptly made during the period which may lead to provisions to be made for bad debts in future .The Entertainment Supplies Pvt Ltd is making a good policy of receiving the payments by giving prompt discount to its supplier in this regard. So overall the reliability have been satisfied in the debtors record from the above workings. State one advanatge of discount for prompt payment The one advantage of prompt discount is that it can avoid bad debts .Offering cash discounts may allow a company to retain more revenue and profits.Smart business vet out customers before they extend them large lines of credit.Business often have no choice but to write off bad debts.A cash discount may mean the business only receives 99 to 98 % of face value ofthe sale price but it may mean more business overall.
State one disadvantage for your debtor making a prompt payment in order to get a
discount
From this system of cash discounts, arose a custom widely indulged in by buyers, who, preferring not to take advantage of the discount period offered them by sellers, deduct their discount in any event, notwithstanding the fact that they overran the period of credit granted them. On account of close competition in trade, sellers are often inclined to permit this practice, thus allowing the buyer to gain an unfair advantage over them.
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