Addo is a trader who only sells on credit. His trade receivables at 1 April 2024 were as follows: $ Nuru 920 Mahia 1145 Ava 1378 Rachel 215 3658 During April 2024, the following transactions took place: April 2 Sold goods to Ava, list price $150, less 6% trade discount 9 Received telephone transfer from Ava, $689 12 Sold goods to Nuru, $165 13 Received cheque, $627, from Mahia, in full settlement of an invoice for $660 19 Received $760 from Nuru by electronic transfer. Nuru had deducted 5% cash discount 20 Nuru returned goods $30 21 Sold goods to Mahia, list price $480, trade discount 5%, cash discount 5% if invoice paid within 30 days 30 Rachel has become bankrupt and Addo decides to write off the amount owing from her, as irrecoverable

Mark scheme

Marking points from the official mark scheme (May/June 2024). The mark or mark type is shown in brackets.

1. [1] Sales journal entry for Ava: Apr 2 Ava (150 – 9) 141
2. [1] Sales journal entry for Mahia: 21 Mahia (480 – 24) 456
3. [1] Sales journal total: 30 Transfer to sales account 762 (OF)
4. [1] Journal entry debit: Irrecoverable debts 215
5. [1] Journal entry credit: Rachel 215
6. [1] Journal entry narrative: Amount due from Rachel written off as irrecoverable
7. [1] Total amount received = $689 +$627 + $760 = $2076
8. [1] Cash discount for Nuru: $40
9. [1] Total cash discount = $40 + $33 = $73 (OF)
10. [1] Sales ledger control account: Debit Balance b/d $3658
11. [1] Sales ledger control account: Debit Sales $762 (OF)
12. [1] Sales ledger control account: Credit Sales returns $30
13. [1] Sales ledger control account: Credit Bank $2076 (OF)
14. [1] Sales ledger control account: Credit Discount allowed $73 (OF)
15. [1] Sales ledger control account: Credit Irrecoverable debts $215 (OF)
16. [1] Sales ledger control account: Credit Balance c/d $2026
17. [1] Sales ledger control account: Debit Balance b/d $2026 (OF)
18. [1] Advantage: Increased cash discount may encourage new customers/existing customers to buy more/increase sales
19. [1] Advantage: More customers may pay early because of extra discount/improve liquidity
20. [1] Advantage: Irrecoverable debts may be reduced
21. [1] Advantage: Increased credit check indicates ability to pay
22. [1] Disadvantage: More credit checks would take more time/cost more money
23. [1] Disadvantage: Less money coming in from sales
24. [1] Disadvantage: No guarantee that customers will pay early
25. [1] Disadvantage: Less profit on each sale/profit for the year will be reduced/expenses increased if give cash discount
26. [1] Disadvantage: No guarantee that there will not be any irrecoverable debts
27. [1] Recommendation