What is the difference between the treatment of cash purchases and credit purchases?
With cash purchases, no entry is made in the the supplier's account. This is because cash passes immediately and therefore there is no need to keep a check of how much money is owing to that supplier. On the other hand, with credit purchases, the records should show to whom money is owed until payment is made and so an entry is always made in the supplier's (creditor's) account.
Why do you think we would want to look at the accounts receivable in the accounting books as often as once a month?
In order to survive, business must, in the long term, make profits. However, even profitable businesses go 'bust' if they do not have enough funds to pay their bills when they are due. Debtors represent a resource that is not yet in the form of funds (e.g CASH) that can be used to pay bills. By regularly monitoring the position on the account of each debtor, a business can tell which debtors are being slow to pay and, very importantly, do something about it.
No comments:
Post a Comment