Friday, December 28, 2007

Credit Sales and Purchases

What is a Credit Sale and Purchase?

Credit sales transfer products and services to a customer today while bearing the risk of collecting payment from that customer in the future. Credit sales transactions are also known as sales on account or services on account.

Credit sales are common for large business transactions in which buyers do not have sufficient cash available or in which credit cards cannot be used because the transaction amount exceeds typical credit card limits.

However, in general, the easiest way to explain credit sales is that cash isn’t collected until sometime after the sale is made; the customer is given a period of time before it has to pay the business.

Accounts Receivables and Credit Sales

Accounting Question 1. Happy Company’s Accounts Receivable showed a normal balance of $46,300 on January 1, and $51,500 on January 31. During the month of January, they collected $78,300 from their credit customers in sales. What was the total credit sales for Happy in January?

Accounting Question 2. Happy Company’s Accounts Payable showed a (normal) balance of $76,300 on January 1, and $71,800 on January 31. During the month of January, they paid $82,900 to their suppliers. What was the total credit purchase for Happy in January?

Accounting Question 3. Happy Company’ Trial Balance on their accounting records as of December 31, 2005 reported the following accounts with their normal balances
Unearned Fees

Common Stock
$ 103,000
Interest Expense

Office Equipment

Prepaid Insurance
Office Supplies

Retained earnings

Utilities Expense

What is Utilities Expense?

1. $83,500
2. $78,400
3. $7,400

Additional Links to Accounting Problems and Examples:

1 comment:

Unknown said...

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