Provision for Discount on Debtors Homework Answers
If you are a student of accountancy, you must have come across the term ‘discount on debtors’. Some of you might be well versed with the term and its accounting implications. Here we will understand the term and its significance in accounting.
Who are debtors?
Every person or entity who owes money to another party is called a debtor. When it comes to accounts of companies, all persons or firms from whom company has to get payment for goods sold or any other transaction, are considered as debtors. The other party in transaction or party to whom payment is due becomes creditor.
What is discount on debtors?
To do well in provision for discount on debtors homework answers, first we have to understand what this discount is. Discount on debtors is in fact, a discount to debtors. Whenever someone makes prompt payment, a discount if offered to them as an encouragement for prompt payments in future also. This is given only to those who pay well in time.
Why is a provision created?
Discount is provided to borrowers only when payment is made. Before that a provision for the same is created by keeping aside some amount out of the profits. This discount is a loss to the company. But it is contingent in nature, which means it may or may not become an actual loss. Therefore a provision needs to be created for this well in advance so that it does not affect profit balances. While doing provision for discount on debtors homework answers, you need to bear in mind that provision for discount and actual discount have different accounting entries.
Advantages of discounts
Providing discounts and the percentage of discounts vary from company to company.
- Discounts act as an incentive to borrowers to make payment in time. An early bird prize will always have takers.
- Greater discounts create good image for companies in market. Prospective customers look for those which offer good terms.
- It helps to increase sales by attracting even customers who are not having ready cash, as they will have hopes of getting discounts on making payments. It boosts cash and credit sales.
Causes of confusion in provision for discount on debtors homework answers
Every assignment on final accounts will invariably have some adjustments related to debtors. I have seen many students going wrong in this area. The main reason behind this is lack of understanding of all terms used. Let me list out some confusing areas.
- Bad debts and discounts:
These two terms can be considered as standing on opposite sides of debtor’s accounts. Bad debts are those debts which are irrecoverable. Sometimes borrowers fail to make payments even after several reminders. Companies will write off such amount as bad debts. Discounts, on the other hand, are given only to good debts. Only those debtors who are expected to pay in time will qualify for discounts.While doing provision for discount on debtors homework answers, students are confused about this. The right way to do is to deduct bad debts from total debtors before creating provision.
- Provision for doubtful debts:
This is another provision created out of profits. It provides an adjustment for debts that are not bad yet, but are likely to be irrecoverable. It takes into account the probability that some borrowers may not repay money due from them. This provision also has to be deducted from debtors to get the actual amount of good debtors.
Proper accounting of discounting
Students mostly go wrong in provision for discount on debtors homework answers as they ignore adjustments for bad debts or make it wrongly. Discounts will be usually given in percentages. While calculating this, if you forget to make allotments for bad and doubtful debts, your answer goes wrong. The right way is to first deduct bad debts from debtors and then create provision for doubtful debts. After deducting both bad and doubtful debts, you get good debts. Discount on debtors is to be calculated on this good debt.
Sundry debtors – (bad debts+ doubtful debts) = Good debts
Discount on debtors = Fixed percentage of good debts
Remember this to get correct answers in your assignments.
Can I take online help for debtors related homework?
Today’s students are more tech savvy than their seniors. Whenever they get doubts, first thing they do is to search online. This applies to home assignments also. When you get confused, you go online. Some of you may doubt whether provision for discount on debtors homework answers can be found on internet. Yes, you can get it, if you approach a good educational website. Good sites will have experts on every topic and will help you out on all homework topics.
When to approach homework help sites
Although easily available, you need not go for online help at the drop of a hat. Analyse your situation and decide whether it calls for help.
- Too many adjustments:
When homework problem has too many adjustments and you are likely to make mistakes, it is better to ask for external help. Homework providers are specialists in their field. You can be sure of an error-free answer.
- Too little time:
If date of submission is too near, you get tensed. Stress causes more mistakes. In such cases, instead of fretting over deadlines, you can approach homework help sites.
- Grades hanging in the balance:
If your grades depend on this submission, why take risk? Entrust homework to specialists and they will do the rest.
- No help at hand:
Sometimes, homework may be too difficult and professor may stay far away. Your family members may not be adept in the subject. The best option for you is to approach homework help providers.
All said, students need to be judicious while selecting the proper website. There are quite a few sites whose quality of work will be a far cry from desired standards. Always check background properly before handing over homework to them. If you exercise caution and entrust your work to the best, rest assured that success is on your way.