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Hallo,
In the following example what does “$350 of debit balances were transferred to receivables” mean – why do they say debit balance?
At 1 January 20X1 payables were owed $10,000, by 31 December 20X1 they were owed $8,000. In the year, receivables and payables contras were $3,500, and $350 of debit balances were transferred to receivables, credit purchases were $60,000 and $2,500 of discounts were received.
Thank you!
Payables are usually credit balances. If someone has a debit balance then it is because (for example) maybe we overpaid and therefore the supplier owes us money.
Instead of leaving it as a debit on payables, they are transferring it to receivables (Cr Payables; Dr Receivables) because we are owed money.Hallo,
One more similar question. In:
Harry has budgeted sales for the coming year of $175,000. He achieves a constant gross mark-up of 40% on cost. He plans to reduce his inventory level by $13,000 over the year.
What will Harry’s purchases be for the year? Answer 112000– what is the meaning of “to reduce his inventory level by $13,000” – actually they related it to less purchases, but I didn’t know, so whenever they talk about reducing inventory, I have to think only of buyng less, or making less purchases, is it?
Thank you!
I don’t know why you say this question is similar! 🙂
If a business produces more that it sells, then the extra will simply cause the level of inventory to increase.
If a company sells more than it produces, then the extra must be coming from inventory and inventory will reduce.
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