Part A Conceptual and regulatory framework ⏐ 2: Assets and liabilities 21
Question
Profit
What is Courtney's profit on 10 July?
A $200 C $320
B $120 D $2,690
Answer
C Her profit is $320 (see 3.5 (b) (i) above).
3.6 Receivables and payables
A payable is a person to whom a business owes money and is therefore a liability of a business.
A receivable is a person who owes money to the business and is therefore an asset of the business.
It is common business practice to make purchases on credit, with a promise to pay within 30 days or two months or
three months from the date of the bill (or
'invoice') for the goods. For example, A buys goods costing $2,000 on credit
from B. B sends A an invoice for $2,000, dated 4 March, with credit terms that payment must be made within 30 days. If
A pays on 31 March, B will be a payable of A between 4 and 31 March for $2,000.
Just as a business might buy goods on credit, so might it sell goods to customers on credit. A customer who buys
goods on credit is a receivable. Taking the example above, A is a receivable of B for $2,000 between 4 and 31 March.
3.7 Example continued
Courtney Spice's market stall continues to trade during the following week to 17 July 20X6. (See Paragraph 3.5 (b)(ii) for
the situation as at the end of 10 July.)
(a) Courtney needs more money in the business and so she makes the following arrangements.
(i) She invests a further $250 of her own savings.
(ii) She persuades her Uncle Phil to lend her $500 immediately. Uncle Phil tells her that she can repay the
loan whenever she likes but, in the meantime, she must pay him interest of $5 each week at the end of the
market day. They agree that it will probably be quite a long time before the loan is eventually repaid.
(b) She decides that she can afford to buy a second hand van to pick up herbs and spices from her supplier and
bring them to her stall in the market. She buys a van on credit for $700. Courtney agrees to pay for the van after
30 days
' trial use.
(c) During the week before the next market day (17 July), Courtney
's Uncle Grant asks her if she could sell him some
spice racks and herb chopping boards as presents for his friends. Courtney agrees and she buys what Uncle
Grant wants, paying $300 in cash. Uncle Grant accepts delivery of the goods and agrees to pay $350 to Courtney
for them, but he asks if she can wait until the end of the month for payment. Courtney agrees.
(d) Courtney buys herbs and spices costing $800. Of these purchases $750 are paid for in cash, with the remaining
$50 on seven days
' credit. Courtney decides to use Bianca's services again as an assistant on market day, at an
agreed wage of $40.
Key terms
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