Question

In: Accounting

1. Accounts payable (a .k.a. trade accounts payable) is the account credited when goods or services...

1.

Accounts payable (a

.k.a. trade accounts payable) is the account credited when goods or services are purchased on

open account (meaning payment has been delayed - often due in 30 days).

a.

Explain the following: 1.5/10, n/30

b.

In the above example, what is the effective interest rate earned by taking advantage of the discount

(paying before the 30 days).

2.

Explain the difference between accounts Payable and notes Payable

.

3.

Explain the difference between an interest bearing note and a non-interest bearing note

.

4.

What is the difference between

unearned revenue

(sales) and

revenue

. Prepare the journal entry for each of the

following:

a.

Sold $15,000 of product in a cash sale.

b.

Received $15,000 payment in advance from customer for product to be shipped in 20 d

Solutions

Expert Solution

  1. Explain the following: 1.5/10, n/30

It means vendor expects to pay within 30 days of the invoice date but vendor will get an additional 1.5% discount if he makes the payment within 10 days of the invoice date.

  1. In the above example, what is the effective interest rate earned by taking advantage of the discount (paying before the 30 days).

Effective interest rate      =

                      Discount %          *         360

            100 – Discount %                   30 -10

             1.5 % / 100- 1.5%      *360 / 20

           .015 / .985     * 360 / 20

                   = 27.41 %

2 Explain the difference between accounts Payable and notes Payable

Although both are liabilities but accounts payable arises when one purchases the goods or received services whereas notes payable is a written promissory note which arises when one borrows money and it is recorded in the general ledger account.

3. Explain the difference between an interest bearing note and a non-interest bearing note

A non-interest bearing note is that on which there is no stated interest on the face value , whereas they do actually pay interest and interest bearing note is that on which there is stated interest is charged.

4. What is the difference between unearned revenue (sales) and revenue?

Unearned revenue means cash has been received for the sale of the goods but actually no sale has been made. It is to be delivered in future. Whereas revenue means goods has been delivered either on cash or on credit.

Prepare the journal entry for each of the following:

A sold $15,000 of product in a cash sale

Received $15,000 payment in advance from customer for product to be shipped in 20 d

Particulars

Debit

Credit

Cash

        Sales

(To record cash sale)

15,000

15,000

Cash

       Unearned Sales Revenue

(To record payment received in advance)

15,000

15,000

ekkarill92 answered 1 year ago
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