topic 10: trade payables and trade receivables

what are trade receivables

refers to the amount owed by customers who buy goods or services from the business on credit

what are some accounting information to consider when granting customers credit

• trade receivable balance

• existing customers’ repayment history

• credit terms and cash discounts

what are some non accounting information to consider when granting customers credit

• specific industry outlook

• economic outlook

• reputation of customer

why do businesses grant credit to their customers

to encourage more customers to buy goods or services

what are some accounting information to consider when deciding which supplier to buy from

• cost of product / service

• trade discounts

• cost of maintenance

what are some non-accounting information to consider when deciding which supplier to buy from

• local or overseas supplier

• after sales service

• warranty

• reputation of supplier

what are trade discounts

used to encourage bulk purchases and loyalty of customers and is not recorded in ledger accounts

what are cash discounts

used to encourage prompt payment and is recorded in ledger accounts as either discount allowed or discount received