Trade receivables, trade payables, discounts allowed/received, settlement of debts

1. A customer owed $2400. Goods previously sold on credit, $300, were returned. A further allowance of $50 was granted because some goods were damaged. The customer then paid the remaining balance by cheque after deducting 4% cash discount. How much was received by cheque?

A $1968
B $2050
C $2112
D $2304

2. A trader owed a supplier $5000. Goods costing $600 were returned to the supplier. The trader then paid the balance by cheque after receiving 2.5% cash discount. How much discount received was recorded?

A $110
B $125
C $150
D $235

3. A customer’s account shows: balance b/d $1800 debit, sales $2600 debit, bank $3000 credit, sales returns $400 credit, discount allowed $120 credit. What is the closing balance?

A $880 debit
B $880 credit
C $1000 debit
D $1000 credit

4. A supplier’s account shows: balance b/d $2200 credit, purchases $3700 credit, bank $4100 debit, purchases returns $600 debit, discount received $200 debit. What is the closing balance?

A $1000 credit
B $1000 debit
C $1200 credit
D $1600 credit

5. A credit customer paid $1862 by cheque after deducting 5% cash discount. What was the original amount owed before the discount?

A $1768.90
B $1955.10
C $1960
D $2000

6. A trader paid a supplier $2805 by cheque after receiving 15% discount. What was the amount originally owed?

A $2384.25
B $3000
C $3300
D $3225.75

7. Which entry records cash discount allowed to a credit customer?

A Debit discount allowed, credit trade receivable
B Debit trade receivable, credit discount allowed
C Debit discount received, credit trade payable
D Debit trade payable, credit discount received

8. Which entry records discount received from a credit supplier?

A Debit discount received, credit trade payable
B Debit trade payable, credit discount received
C Debit discount allowed, credit trade receivable
D Debit trade receivable, credit discount allowed

9. A customer owed $900. The customer returned goods of $150 and paid the remaining amount by cheque after deducting $30 discount. Which entries clear the customer’s account?

A Debit bank $720, debit discount allowed $30, debit sales returns $150, credit customer $900
B Debit bank $720, credit discount received $30, credit sales returns $150, debit customer $900
C Debit customer $900, credit bank $720, credit discount allowed $30, credit sales returns $150
D Debit bank $750, debit discount allowed $30, credit customer $780

10. A trader owed a supplier $1200. The trader returned goods of $180 and paid the remaining amount by cheque after receiving $40 discount. Which entry clears the supplier’s account?

A Debit supplier $1200, credit bank $980, credit purchases returns $180, credit discount received $40
B Debit bank $980, debit purchases returns $180, debit discount received $40, credit supplier $1200
C Debit supplier $1020, credit bank $980, credit discount received $40
D Debit supplier $1200, credit bank $1020, credit purchases returns $180

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. A customer’s account has a credit balance brought down. What does this usually mean?

A The customer owes the business money
B The business owes the customer money or the customer has overpaid
C The customer has returned goods to a supplier
D The business has made a credit sale

12. A supplier’s account has a debit balance brought down. What does this usually mean?

A The business owes the supplier money
B The supplier owes the business money or has been overpaid
C The supplier has sold goods to the business on credit
D The business has received discount from the supplier

13. Which item is posted to the credit side of a trade receivable’s account?

A Credit sales
B Interest charged to the customer
C Cash received from the customer
D Opening debit balance

14. Which item is posted to the debit side of a trade payable’s account?

A Credit purchases
B Payment to supplier
C Opening credit balance
D Invoice received from supplier

15. A customer owes $1500. The business agrees to accept $1450 in full settlement. What is the correct double entry for the discount?

A Debit discount allowed $50, credit customer $50
B Debit customer $50, credit discount allowed $50
C Debit discount received $50, credit customer $50
D Debit customer $50, credit discount received $50

16. A supplier agrees to accept $760 in full settlement of a debt of $800. What is the correct double entry for the discount?

A Debit discount received $40, credit supplier $40
B Debit supplier $40, credit discount received $40
C Debit discount allowed $40, credit supplier $40
D Debit supplier $40, credit discount allowed $40

17. A customer’s account shows a debit balance of $600 before a payment is received. The customer pays $570 in full settlement. Which statement is correct?

A Discount allowed is $30
B Discount received is $30
C Sales returns are $30
D The customer still owes $30

18. A supplier’s account shows a credit balance of $840 before payment. The trader pays $800 in full settlement. Which statement is correct?

A Discount allowed is $40
B Discount received is $40
C Supplier still owes $40
D Trade payable increases by $40

19. A business allowed $200 discount to customers and received $350 discount from suppliers. What is the net effect on profit?

A Profit decreases by $550
B Profit increases by $550
C Profit increases by $150
D Profit decreases by $150

20. Discount allowed was wrongly recorded as discount received. The amount was $90. What is the effect on profit?

A Profit overstated by $90
B Profit understated by $90
C Profit overstated by $180
D Profit understated by $180

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

21. Discount received was wrongly recorded as discount allowed. The amount was $75. What is the effect on profit?

A Profit overstated by $75
B Profit understated by $75
C Profit overstated by $150
D Profit understated by $150

22. A customer owing $2500 paid $2375 in full settlement. The receipt was correctly entered in the bank column but no discount was recorded. What balance remains incorrectly on the customer’s account?

A $125 debit
B $125 credit
C $2375 debit
D $2500 credit

23. A supplier was owed $1800 and was paid $1710 in full settlement. The bank payment was recorded but the discount was omitted. What balance remains incorrectly on the supplier’s account?

A $90 debit
B $90 credit
C $1710 debit
D $1800 credit

24. A customer returned goods of $320 but this was posted to the debit side of the customer’s account. What is the effect on the customer’s balance?

A It is overstated by $320
B It is understated by $320
C It is overstated by $640
D It is understated by $640

25. Goods returned to a supplier, $450, were posted to the credit side of the supplier’s account. What is the effect on the supplier’s balance?

A It is overstated by $450
B It is understated by $450
C It is overstated by $900
D It is understated by $900

26. A customer’s account was credited with $940 when the customer paid $940 by cheque. The bank entry was accidentally omitted. What is the effect?

A Trade receivables correct, bank understated
B Trade receivables overstated, bank correct
C Trade receivables understated, bank overstated
D Both trade receivables and bank correct

27. A supplier’s account was debited with $680 when paid by cheque. The bank entry was accidentally omitted. What is the effect?

A Trade payables correct, bank overstated
B Trade payables overstated, bank correct
C Trade payables understated, bank understated
D Both trade payables and bank correct

28. A customer owing $1200 is also a supplier to whom the business owes $500. The balances are set off against each other. Which entry records the contra?

A Debit trade receivable $500, credit trade payable $500
B Debit trade payable $500, credit trade receivable $500
C Debit trade receivable $1200, credit trade payable $1200
D Debit trade payable $700, credit trade receivable $700

29. After a contra entry between a customer and supplier, what is the effect on total assets and total liabilities?

A Assets increase and liabilities increase
B Assets decrease and liabilities decrease
C Assets increase and liabilities decrease
D Assets decrease and liabilities increase

30. A customer owed $1600 and paid $800 cash. The remaining debt was written off as irrecoverable. What is the effect on trade receivables?

A Decrease by $800
B Decrease by $1600
C Increase by $800
D No effect

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

31. A customer owed $700. The business accepted goods worth $300 from the customer in part settlement and cash of $380 in full settlement. What is the discount allowed?

A $20
B $300
C $320
D $680

32. A supplier was owed $950. The trader returned goods worth $120 and paid $800 by cheque in full settlement. What is the discount received?

A $30
B $120
C $150
D $830

33. A customer is charged interest of $40 on an overdue account. Which entry is correct?

A Debit trade receivable, credit interest received
B Debit interest received, credit trade receivable
C Debit trade payable, credit interest received
D Debit interest paid, credit trade receivable

34. A supplier charges the business $60 interest on an overdue account. Which entry is correct?

A Debit interest expense, credit trade payable
B Debit trade payable, credit interest expense
C Debit interest received, credit trade payable
D Debit trade receivable, credit interest received

35. A credit sale of $900 was posted to the customer’s account as $90. What is the effect on trade receivables?

A Understated by $90
B Understated by $810
C Overstated by $810
D Overstated by $900

36. A payment to a supplier of $540 was posted to the supplier’s account as $450. What is the effect on trade payables?

A Understated by $90
B Overstated by $90
C Understated by $990
D Overstated by $990

37. A receipt from a customer of $650 was posted to the customer’s account as $560. What is the effect on trade receivables?

A Overstated by $90
B Understated by $90
C Overstated by $1210
D Understated by $1210

38. A credit purchase of $1100 was posted to the supplier’s account as $1010. What is the effect on trade payables?

A Understated by $90
B Overstated by $90
C Understated by $2110
D Overstated by $2110

39. The sales ledger shows total debit balances of $18 600 and credit balances of $400. What amount should be shown as trade receivables in the statement of financial position?

A $18 200
B $18 600
C $19 000
D $400

40. The purchases ledger shows total credit balances of $21 500 and debit balances of $700. What amount should be shown as trade payables in the statement of financial position?

A $20 800
B $21 500
C $22 200
D $700

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. Why are credit balances in the sales ledger not deducted from trade receivables in the statement of financial position?

A They are liabilities and should be shown separately
B They are expenses and should be deducted from profit
C They are income and should be added to sales
D They are assets and should be included in inventory

42. Why are debit balances in the purchases ledger not deducted from trade payables in the statement of financial position?

A They are assets and should be shown separately
B They are liabilities and should be shown separately
C They are expenses and should be added to purchases
D They are income and should be deducted from sales

43. A credit customer paid $980 by cheque in full settlement of $1000. The entry was made as debit bank $980 and credit customer $980. What correction is needed?

A Debit discount allowed $20, credit customer $20
B Debit customer $20, credit discount allowed $20
C Debit discount received $20, credit customer $20
D Debit customer $20, credit discount received $20

44. A supplier was paid $1440 by cheque in full settlement of $1500. The entry was made as debit supplier $1440 and credit bank $1440. What correction is needed?

A Debit supplier $60, credit discount received $60
B Debit discount received $60, credit supplier $60
C Debit supplier $60, credit discount allowed $60
D Debit discount allowed $60, credit supplier $60

45. A customer owes $400. The business gives the customer a cash discount of 10% and receives the rest by cheque. What happens to total assets?

A Increase by $360
B Decrease by $40
C Decrease by $400
D No change

46. A trader owes a supplier $400. The supplier gives 10% discount and the trader pays the rest by cheque. What happens to net assets?

A Increase by $40
B Decrease by $40
C Decrease by $360
D No change

47. A credit customer pays $500 in advance before any goods are supplied. How should this be shown by the business receiving the money?

A As trade receivable
B As trade payable/liability
C As discount received
D As sales returns

48. A business pays $700 in advance to a supplier before goods are supplied. How should this be shown by the business making the payment?

A As trade payable
B As trade receivable/asset
C As discount allowed
D As purchases returns

49. A customer who owed $900 paid $850 in full settlement. The discount was correctly entered in the cash book but posted to the wrong side of discount allowed account. What is the effect on profit?

A Profit overstated by $50
B Profit understated by $50
C Profit overstated by $100
D Profit understated by $100

50. A supplier allowed $70 discount. The discount was correctly entered in the cash book but posted to the wrong side of discount received account. What is the effect on profit?

A Profit overstated by $70
B Profit understated by $70
C Profit overstated by $140
D Profit understated by $140

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

1. A
   Amount due after returns and allowance = 2400 − 300 − 50 = 2050.
   Cash discount = 4% × 2050 = 82.
   Cheque received = 2050 − 82 = $1968.

2. A
   Balance after returns = 5000 − 600 = 4400.
   Discount received = 2.5% × 4400 = $110.

3. A
   Debit side = 1800 + 2600 = 4400.
   Credit side = 3000 + 400 + 120 = 3520.
   Closing balance = 880 debit.

4. A
   Credit side = 2200 + 3700 = 5900.
   Debit side = 4100 + 600 + 200 = 4900.
   Closing balance = 1000 credit.

5. C
   $1862 is 95% of the original debt.
   Original debt = 1862 / 0.95 = $1960.

6. C
   $2805 is 85% of the original debt.
   Original debt = 2805 / 0.85 = $3300.

7. A
   Discount allowed is an expense and reduces the customer’s debt.
   Debit discount allowed, credit trade receivable.

8. B
   Discount received is income and reduces the supplier’s balance.
   Debit trade payable, credit discount received.

9. A
   Customer’s full debt of $900 must be cleared.
   Debit bank $720, debit discount allowed $30, debit sales returns $150, credit customer $900.

10. A
    Supplier’s full account of $1200 must be cleared.
    Debit supplier $1200, credit bank $980, credit purchases returns $180, credit discount received $40.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. B
    A credit balance in a customer’s account means the customer has overpaid or the business owes the customer.

12. B
    A debit balance in a supplier’s account means the supplier owes the business, usually because of overpayment or returns.

13. C
    Cash received from a customer reduces the receivable, so it is credited in the customer’s account.

14. B
    Payment to supplier reduces the payable, so it is debited in the supplier’s account.

15. A
    Discount allowed = 1500 − 1450 = $50.
    Debit discount allowed $50, credit customer $50.

16. B
    Discount received = 800 − 760 = $40.
    Debit supplier $40, credit discount received $40.

17. A
    Debt = $600. Payment = $570. Difference = $30 discount allowed.

18. B
    Debt = $840. Payment = $800. Difference = $40 discount received.

19. C
    Discount received increases profit by $350.
    Discount allowed decreases profit by $200.
    Net profit increase = $150.

20. C
    Discount allowed should reduce profit by $90. Instead, it was treated as discount received, increasing profit by $90.
    Profit overstated by $180. Nasty little trap.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

21. D
    Discount received should increase profit by $75. Instead, it was treated as discount allowed, reducing profit by $75.
    Profit understated by $150.

22. A
    Customer owed $2500 and paid $2375. Discount allowed = $125.
    If discount is omitted, a $125 debit balance wrongly remains.

23. B
    Supplier was owed $1800 and paid $1710. Discount received = $90.
    If discount is omitted, a $90 credit balance wrongly remains.

24. C
    Sales returns should credit the customer by $320. It was wrongly debited instead.
    Error effect = 320 + 320 = $640 overstated.

25. C
    Purchases returns should debit the supplier by $450. It was wrongly credited instead.
    Supplier balance is overstated by $900.

26. A
    The customer account is correct because it was credited. Bank receipt was omitted, so bank is understated.

27. A
    The supplier account is correct because it was debited. Bank payment was omitted, so bank is overstated.

28. B
    Contra reduces both the payable and the receivable.
    Debit trade payable $500, credit trade receivable $500.

29. B
    Contra reduces assets because receivables decrease, and reduces liabilities because payables decrease.

30. B
    Cash received reduces receivable by $800. Debt written off reduces receivable by another $800.
    Total trade receivables decrease by $1600.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

31. A
    Debt = $700.
    Settlement = goods $300 + cash $380 = $680.
    Discount allowed = $20.

32. A
    Debt = $950.
    Settlement = returns $120 + cheque $800 = $920.
    Discount received = $30.

33. A
    Interest charged to a customer increases the amount owed by the customer and creates income.
    Debit trade receivable, credit interest received.

34. A
    Interest charged by a supplier is an expense and increases the amount owed.
    Debit interest expense, credit trade payable.

35. B
    Receivable should be $900 but was recorded as $90.
    Trade receivables understated by $810.

36. B
    Supplier account should be debited $540 but was debited $450.
    Payables were not reduced enough, so trade payables are overstated by $90.

37. A
    Customer account should be credited $650 but was credited $560.
    Receivables were not reduced enough, so trade receivables are overstated by $90.

38. A
    Supplier account should be credited $1100 but was credited $1010.
    Trade payables understated by $90.

39. B
    Trade receivables should show the debit balances only: $18 600.
    Credit balances in the sales ledger are liabilities, not deductions from receivables.

40. B
    Trade payables should show the credit balances only: $21 500.
    Debit balances in the purchases ledger are assets, not deductions from payables.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. A
    Credit balances in the sales ledger mean the business owes customers money. They are liabilities and should be shown separately.

42. A
    Debit balances in the purchases ledger mean suppliers owe the business money. They are assets and should be shown separately.

43. A
    The missing discount is $20.
    Correction: debit discount allowed $20, credit customer $20.

44. A
    The missing discount received is $60.
    Correction: debit supplier $60, credit discount received $60.

45. B
    Receivable decreases by $400, bank increases by $360.
    Net assets decrease by $40 because discount allowed is an expense.

46. A
    Payable decreases by $400, bank decreases by $360.
    Net assets increase by $40 because discount received is income.

47. B
    Money received from a customer before goods are supplied is a liability, because the business owes goods/services or a refund.

48. B
    Money paid to a supplier before goods are supplied is an asset, because the supplier owes goods/services or a refund.

49. C
    Discount allowed should be debited $50, reducing profit. It was wrongly credited, increasing profit instead.
    Profit overstated by $100.

50. D
    Discount received should be credited $70, increasing profit. It was wrongly debited, reducing profit instead.
    Profit understated by $140.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.