Accounts Receivable Overview Quiz

Questions and Answers

What happens to the Accounts Receivable balance when merchandise is sold on account and sales tax is also collected?

Decreased

Increased (correct)

Remains the same

None of the above

What should Marris Company record the $1,000.00 sale on account made on May 23?

Sales journal

What is the amount recorded in the Accounts Receivable amount column of a sales journal for a sale on account of $1,000.00 plus sales tax of $80?

$1,080.00

How is the amount of sales tax on a sale calculated?

Times the sales tax rate Signup and view all the answers

Why should a business post sales on account transactions to the accounts receivable subsidiary ledger frequently?

To ensure each customer account will show an up-to-date balance Signup and view all the answers

What is the amount of cash received for a sale on account of $1,080.00 when cash is received within the 2% discount period?

$1,058.00 Signup and view all the answers

When do most businesses receive cash for credit and debit card sales?

Within 2-3 business days after batching out Signup and view all the answers

What do the credit terms 2/10, n/30 mean?

If the account is paid within 10 days, a 2% discount will be allowed Signup and view all the answers

Study Notes

Accounts Receivable Overview

Accounts Receivable increases when merchandise is sold on account, including sales tax collection.
It represents money owed to a business for credit sales, reflecting customer purchases.

Recording Sales

For Marris Company, a $1,000.00 sale on account occurred on May 23, recorded in the sales journal.
The customer's payment on June 6 involves updating the accounts receivable records accordingly.

Sales Amount and Tax Calculation

On a $1,000.00 sale with an $80 sales tax, the total entered in the Accounts Receivable column is $1,080.00.
Sales tax is computed by multiplying the price of goods by the applicable sales tax rate.

Importance of Posting Transactions

Regularly updating the accounts receivable subsidiary ledger ensures accurate and current customer account balances.
Frequent postings help track customer payments and manage credit effectively.

Cash Discounts

If cash is received promptly, a 2% discount applies, adjusting the amount to $1,058.00 from a total sale of $1,080.00 during the discount period.
This encourages quicker payments from customers and improves cash flow.

Timing for Cash Receipts

Businesses typically receive cash for credit and debit card transactions within 2-3 business days after batch processing.
Timely cash flow is crucial for business operations and financial planning.

Credit Terms Explanation

The term "2/10, n/30" indicates a 2% discount is available if the amount is paid within 10 days; otherwise, the net amount is due in 30 days.
Understanding credit terms aids businesses in setting payment expectations and managing accounts receivable effectively.

Description

Test your knowledge on accounts receivable, including how sales on account are recorded and how sales tax is calculated. This quiz covers essential concepts such as cash discounts and the importance of updating records for accurate customer balances.