Blair Automotive performed mechanic services for two customers. The first customer owed $5,280 for services, so...

Blair Automotive performed mechanic services for two customers. The first customer owed $5,280 for services, so Blair Automotive made them sign a written promise to pay in full after six months with an annual interest rate of 3.5%. The second customer owed $326 for services, so Blair Automotive plans to send them a bill within the next two weeks, due within 30 days of receipt of the bill. What is the difference between these two transactions?

Expert Solution

Service provided for first customer for $5,280 and services provided for second customer for $326.

Blair Automative performed services and accepted a written promissory note from the first customer for $5,280. Written promise represent legal agreement between two parties. Blair would be record this transaction as follows:

Debit to note receivable

Credit to Service revenue

Blair Automative performed services and it plans to send a bill requiring the paymnet to be made within 30 days of receipt of bill. On the date of billing, Blair would be record this transaction as follows:

Debit to accounts receivable

Credit to Service revenue.

The difference between these two transactions is types of receivable recorded. First customer has to repay the principal amount along with 3.5% annual interest for 6 months, whereas second customer has to repay the only principal amount within 30 days from the receipt of the bill.

ekkarill92 answered 2 years ago

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