1. Accounts payable (a .k.a. trade accounts payable) is the account credited whe
ID: 2413181 • Letter: 1
Question
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
Explanation / Answer
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.
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
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
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