A stove manufacturer sells to retailers on terms of 2% discount in 30 days. The Debtors and Bills
Receivable at the end of December of past two years and Net Sales for all these two years are as
follows:
2009 (Rs.) 2010 (Rs.)
Debtors. 27,421. 16,966
Bills Receivable. 2,106. 1,843
Net Sales. 1,34,233. 1,68,696
Find out Average Collection period for each year and interpret them.
Answers
Answer:
Answer :
Dr Debtor's Account Cr
Date Particulars JF Amt.(Rs) Date Particulars JF Amt. (Rs)
To Balance b/d (Balancing figure) 54,000 By Discount Allowed 2,500
To Bills Receivable (Dishonoured) 3,500 By Bills Receivable (Received) 75,000
To Sales Credit 3,15,000 By Cash A/c 2,20,000
By Balance c/d 75,000
3,72,500 3,72,500
Dr Creditor's Account Cr
Date Particulars JF Amt.(Rs) Date Particulars JF Amt.(Rs)
To Discount Received 1,500 By Balance b/d 50,000
To Cash A/c 1,35,000 By Purchases (credit) 2,95,000
To Bills Receivable (Acceptance) 30,000
To Balance c/d (Balancing figure) 1,78,500
3,45,000 3,45,000
Explanation:
Note : It is assumed that all purchase is credit purchase.
Working Note
Computation of Credit Sales
Sales = Cost of goods sold + Gross profit
Cost of goods sold = Opening stock + Purchases - Closing stock
= 30,000+2,95,000−25,000=3,00,000
When the cost of goods sold is Rs 3,00,000.
Sales will be (Total) = 3,00,000 + 25\%$$ Gross Profit
Gross profit is calculated on sales hence to calculate it on cost of goods sold. The formula will be
= [Costofgoods×
100−25
25
]
= [3,00,000×
75
25
]
Total Sales = 3,00,000+1,00,000=Rs.4,00,000
As we know that cash sales is Rs 85,000
So credit sales will be = 4,00,000−85,000=Rs3,15,000