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?

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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 1 year ago

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