Assume you are the owner of Victory Cycle Shop and just received an order of bik

Question

Assume you are the owner of Victory Cycle Shop and just received an order of bikes from Roseville. You notice that the invoice dated September 22 has terms of 2/10, n/30. The amount of the invoice was originally $1,000.

The payment was made on September 29; however, the clerk failed to book the transaction on September 22.

Identify the adjustments that need to be made in that period in terms of the accrual principle. Explain how to journalize and how to make the adjustments for the proper accounting period.

Address the following items in your response:

What is your motivation for offering the sales discount?

Identify three incentives customers would face to not pay the invoice within the discount period.

Explanation / Answer

Ans 1 and 2 We have to accrue unrecorded sales. By making the following entry Accounts Receivable $1,000 Sales Revenue $1,000 (Being sales anot recorded so now recording it) When we accrue unrecorded sales , sales will increase thereby increasing the operating income Increase in gross sales by $1000 We have to debit accounts receivable as it was on credit sale Now as we received the payment entry was made in the books Cash 980 Sales Discount 20 Accounts Receivable 1000 (this entry has increase the cash , has decrease the net sales by $20 and decrease the accounts receivable by $980 Now the balance sheet is showing accounts receivable at lower amount as it is credited with the payment so we have to increse the accounts receivable by $1000 which was not recorded. Ans 3 Sales discounts are offered so that the company can receive cash from its customers to whom sales are made on account quickly. So when sales discount are offered customers tries to pay quickly to avail the discount and it increase the company cash which in turns increase liquidity) Ans 4 Threeentives customers would face are: 1) they have more time to pay the cash so that cash which they have not paid can be used by them in their business to generate more revenue 2) The rate at which they can borrow money might be higher than sales discount offered so it is better to pay in 30 days instead of 10 days. As interest rate can be higher. 3) They can pay this amount to other creditors where there is urgency to pay

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.