Basic Financial Accounting - Sales, Trade Debtors And Bad Debt

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| By ZukoDaniel
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Basic Financial Accounting - Sales, Trade Debtors And Bad Debt - Quiz

How to post sales, trade debtors and bad debt. A thorough course in Basic Financial accountingImage courtesy of adamr / FreeDigitalPhotos. Net


Questions and Answers
  • 1. 

    28. Journal entry of payment from debtor (customer) - always ignoring VATA company just received payment from an earlier credit sale to a costumer. The amount received is 75.000. The amount is transferred from the costumer into the company’s bank account.How should the information above be posted?

    • A.

      The trade debtors account (asset) is credited 75.000 while the cash account (asset) is debited 75.000.

    • B.

      The trade debtors account (asset) is credited 75.000 while the bank account (asset) is debited 75.000.

    • C.

      The other debtors account (asset) is credited 75.000 while the bank account (asset) is debited 75.000.

    • D.

      The trade debtors account (asset) is debited 75.000 while the bank account (asset) is credited 75.000.

    Correct Answer
    B. The trade debtors account (asset) is credited 75.000 while the bank account (asset) is debited 75.000.
    Explanation
    In this scenario, the company received a payment from a customer for an earlier credit sale. The trade debtors account, which represents the amount owed to the company by the customer, is credited with 75.000 to reflect the decrease in the outstanding balance. At the same time, the bank account is debited with 75.000 to show the increase in cash as the payment is deposited into the company's bank account. This journal entry accurately reflects the transaction.

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  • 2. 

    24. Journal entry of credit sales to customers – without VATA trading company just sold a quantity of goods to a costumer. The invoice amount was 20.000 and the company has granted the costumer 10 days of credit.How should the information above be posted? 

    • A.

      The trade debtors account (asset) is debited 20.000, the sales account (profit/loss) is credited 20.000.

    • B.

      The trade debtors account (asset) is debited 20.000, the accrued income account (liability) is credited 20.000.

    • C.

      The trade debtors account (asset) is credited 20.000, the sales account (profit/loss) is debited 20.000.

    • D.

      The cash account (asset) is debited 20.000, the sales account (profit/loss) is credited 20.000.

    Correct Answer
    A. The trade debtors account (asset) is debited 20.000, the sales account (profit/loss) is credited 20.000.
    Explanation
    When a trading company sells goods on credit to a customer, the journal entry should reflect an increase in the trade debtors account (asset) as the company is owed money by the customer. The sales account (profit/loss) should be credited, indicating that revenue has been generated from the sale. In this case, the invoice amount of 20,000 is recorded as a debit to the trade debtors account and a credit to the sales account. This accurately reflects the transaction and its impact on the company's financial statements.

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  • 3. 

    26. Journal entry of credit notes to debtors (customers) – without VATA company just issued a credit note to a debtor for a part of a previous sale. The value of the credit note is 5.000.How should the information above be posted? 

    • A.

      The cash account (asset) is credited 5.000 while the trade debtors account (asset) is debited 5.000.

    • B.

      The sales account (profit/loss) is debited 5.000 while the trade debtors account (asset) is credited 5.000.

    • C.

      The sales account (profit/loss) is credited 5.000 while the trade debtors account (asset) is debited 5.000.

    • D.

      The cash account (asset) is debited 5.000 while the trade debtors account (asset) is credited 5.000.

    Correct Answer
    B. The sales account (profit/loss) is debited 5.000 while the trade debtors account (asset) is credited 5.000.
    Explanation
    When a company issues a credit note to a debtor for a part of a previous sale, it needs to reduce the sales revenue associated with that sale. This reduction in sales revenue is recorded by debiting the sales account. At the same time, the company needs to decrease the amount owed by the debtor, which is recorded by crediting the trade debtors account. Therefore, the correct posting for this transaction is to debit the sales account for 5.000 and credit the trade debtors account for 5.000.

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  • 4. 

    25. Journal entry of credit sales to customers – with VATA trading company just sold a quantity of goods to a customer. The invoice amount was 50.000 including 10.000 in VAT and the company has granted the costumer 15 days of credit.  How should the information above be posted?

    • A.

      The trade debtors account (asset) is debited 50.000, the sales account (profit/loss) is credited 50.000.

    • B.

      The trade debtors account (asset) is debited 40.000, the sales account (profit/loss) is credited 40.000.

    • C.

      The trade debtors account (asset) is debited 50.000, the sales account (profit/loss) is credited 40.000 while the input VAT account (liability) is credited 10.000.

    • D.

      The trade debtors account (asset) is debited 50.000, the sales account (profit/loss) is credited 40.000 while the output VAT account (liability) is credited 10.000.

    Correct Answer
    D. The trade debtors account (asset) is debited 50.000, the sales account (profit/loss) is credited 40.000 while the output VAT account (liability) is credited 10.000.
    Explanation
    The correct answer is the trade debtors account (asset) is debited 50.000, the sales account (profit/loss) is credited 40.000 while the output VAT account (liability) is credited 10.000. This is because when a company makes a credit sale to a customer, the trade debtors account is debited for the full invoice amount of 50.000, representing the amount owed by the customer. The sales account is credited for the selling price of the goods, which is 40.000, representing the revenue earned. The output VAT account is credited for the VAT amount of 10.000, as this is a liability that the company owes to the tax authorities.

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  • 5. 

    27. Journal entry of credit notes to debtors (customers) – with VATA company just issued a credit note to a debtor for a part of a previous sale. The value of the credit note is 25.000 including 5.000 in VAT.How should the information above be posted?

    • A.

      The sales account (profit/loss) is debited 20.000, the trade debtors account (asset) is credited 25.000 while the output VAT account (liability) is debited 5.000.

    • B.

      The sales account (profit/loss) is debited 25.000, the trade debtors account (asset) is credited 20.000 while the output VAT account (liability) is credited 5.000.

    • C.

      The sales account (profit/loss) is debited 20.000, the trade debtors account (asset) is credited 25.000 while the input VAT account (liability) is debited 5.000.

    • D.

      The sales account (profit/loss) is credited 20.000, the trade debtors account (asset) is debited 25.000 while the output VAT account (liability) is credited 5.000.

    Correct Answer
    A. The sales account (profit/loss) is debited 20.000, the trade debtors account (asset) is credited 25.000 while the output VAT account (liability) is debited 5.000.
    Explanation
    The correct answer is that the sales account (profit/loss) is debited 20,000, the trade debtors account (asset) is credited 25,000, and the output VAT account (liability) is debited 5,000. This is because when a credit note is issued to a debtor, it reduces the amount owed by the debtor, resulting in a decrease in the trade debtors account. The sales account is debited to reflect the reduction in revenue. Additionally, the output VAT account is debited to decrease the VAT liability associated with the sale.

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  • 6. 

    29. Journal entry of an expected loss on trade debtorsA company has not received timely payment from one of its debtors concerning a sale of 100.000 including VAT of 20.000. The company has repeatedly tried to collect the debt but has not been able to get in contact with the debtor. The company therefore expects the debt to be lost. However, since the debtor has not yet been declared bankrupt, the loss is only expected and not yet written off.How should the information above be posted? 

    • A.

      The sales account (profit/loss) is debited 80.000 while the provision for bad debt account (asset) is credited 80.000.

    • B.

      The loss on debtors account (profit/loss) is credited 80.000, the provision for bad debt account (asset) is debited 100.000 while the output VAT account (liability) is credited 20.000.

    • C.

      The loss on debtors account (profit/loss) is debited 80.000, the provision for bad debt account (asset) is credited 100.000 while the output VAT account (liability) is debited 20.000.

    • D.

      The loss on debtors account (profit/loss) is debited 80.000 while the provision for bad debt account (asset) is credited 80.000.

    Correct Answer
    D. The loss on debtors account (profit/loss) is debited 80.000 while the provision for bad debt account (asset) is credited 80.000.
    Explanation
    The correct answer is the loss on debtors account (profit/loss) is debited 80.000 while the provision for bad debt account (asset) is credited 80.000. This is because the company expects the debt to be lost, but it has not yet been declared bankrupt. Therefore, the loss is only expected and not yet written off. By debiting the loss on debtors account, the company recognizes the expected loss as an expense, reducing its profit. By crediting the provision for bad debt account, the company sets aside an amount to cover the expected loss, reducing its assets.

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  • 7. 

    30. Journal entry of an incurred loss on trade debtors A company has just received news that one of its trade debtors has gone bankrupt. The company previously expected the loss and the loss was posted according to the expectations. The outstanding amount was 250.000 including 50.000 in VAT. The company previously posted a provision for bad debt on this debtor for 200.000 ex VAT. The dividend from the bankruptcy was 0. How should the information above be posted?

    • A.

      The trade debtors account (asset) is credited 250.000, the loss on trade debtors account (profit/loss) is debited 200.000 while the output VAT account (liability) is debited 50.000.

    • B.

      The trade debtors account (asset) is credited 250.000, the loss on trade debtors account (profit/loss) is debited 200.000 while the input VAT account (liability) is debited 50.000.

    • C.

      The loss on trade debtors account (profit/loss) is debited 200.000 while the provision for bad debt account (asset) is credited 200.000.

    • D.

      The trade debtors account (asset) is credited 250.000, the provision for bad debt account (asset) is debited 200.000 while the output VAT account (liability) is debited 50.000.

    Correct Answer
    D. The trade debtors account (asset) is credited 250.000, the provision for bad debt account (asset) is debited 200.000 while the output VAT account (liability) is debited 50.000.
    Explanation
    The correct answer is that the trade debtors account (asset) should be credited with 250,000, the provision for bad debt account (asset) should be debited with 200,000, and the output VAT account (liability) should be debited with 50,000. This is because the company previously posted a provision for bad debt on this debtor, so the loss on trade debtors should be recorded by debiting the provision for bad debt account. The trade debtors account should be credited to reduce the amount owed, and the output VAT account should be debited to reflect the decrease in VAT owed.

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  • Current Version
  • Mar 20, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Mar 14, 2014
    Quiz Created by
    ZukoDaniel
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