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Can anyone answer this f3 question :
The following info relating to credit sales has been extracted from the accounting records of a company in relation to the year end 31 Dec 20×7.trade receivables at 31 Dec 20×6 ——-$ 1200
trade receivables at 31 Dec 20×7 ——-$ 1300
settlement discounts allowed ———-$ 100
cash received from customers ———–$ 18000
trade discounts allowed ————$ 250
WHAT amount should be included for sales in the company’s income statement for the year ended 31 Dec 20×7?- Topics: 0
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________________________Trade Rec A/C_____________________________
Opening bal bd 1200 | trade disc allwed 250
Receivables 1300 | cash received 18000
Bal c/d 15750 |
————– —————
18250 18250Sales for the year : $ 15,750
We do not include Settlement discounts allowed because we do not account for it, because it is offered only if the transaction is paid within a time frame. When the sale is done, we do not know in advance is the customer will pay for it, thus we cannot account for it.
Well, I’m not sure about my answer though..
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I disagree. I think that trade discounts allowed $ 250 should only appear on the invoice. Whatever the net invoice amount is (i.e. after deducting any trade discounts) is the amount that gets recorded in the ledger as sales.
The way the question is worded ‘the discounts allowed’ has already been given, i.e. the debtor has paid within a certain time frame.
Therefore I believe the sales figure taken to the income account should be 18,200.
It’s a long time since I did F3, but I still should be able to answer this question!
Step 1. Create a T-account.
B/F = 1200
Discount (early settlement) * (100)
Cash received (18000)Sale (balancing figure) 18200
C/F= 1300
* If I can remember correctly, when a receivable is entered it is net of trade discount. The early settlement discount is credited to the receivable account if the customer pays early.
This is the reason why: if the customer pays the amount owing and receives a discount, the amount he pays will not match the amount he actually owes, so we enter an early settlement discount to completely remove the amount owing.
When doing F3, always remember that the debits and credits must match!Please tell me I’m correct.
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$18200 is the right figure for sales as settlement discount should reduce the AR Balance. Should not be confused between trade discount and cash discount.
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