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

Answer 1

		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 of
	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.