Hi, for Qn 2, may i know why there is no debiting of cash for the advance collection of $12,000 ?
Hi,
As the question indicate that the amount 12,000 is collect in advance. we assume the company has recorded the amount in cash.
Quote from question: Total sales for the month of December amounted to $68,000 of which $12,000 was collected in advance from a customer, $7800 was on credit and the rest were daily cash sales.
The entry made by the company before adjustment is:
Cr Sales 68,000
Dr Bank 60,200 (12,000 + 48,200)
Dr Receivable 7,800
As the 12,000 are money collect from customer in advance, the sales can not be recognised as the risk and ownership of the goods have not been transferred. Therefore the correct entry should be:
Cr Sales 56,000
Dr Bank 60,200 (12,000 + 48,200)
Dr Receivable 7,800
Cr Amount collect in advance 12,000.
When you compare the old entry with the correct one, you will notice that the bank and receivable entry is correct. Therefore we only need to pass Dr Sales 12,000 and Cr Amount collect in advance 12,000.