James is a trader who sells washing machines on credit. But, he does n

1.	James is a trader who sells washing machines on credit. But, he does not remember the due date to collect the money from his debtors. Some of his customers do not pay on time. His cash inflow is becoming worse. As a result, he could not pay his telephone bill and rent at the end of the accounting period. Hence, he showed only the amount paid as expense. He has many washing machines unsold at the year end. He is worried about the performance of his business. So, he is planning to appoint a manager to take care of his business. The new manager insists James to apply the accounting principle of prudence and matching and also to allow cash discount. Now, discuss on the following points:(i) Why does James sell on credit?(ii) Are there any ways to encourage his debtors to make the payment on time?(iii) What might happen if the debtors do not pay?
Answer» (i) James sells goods on credit to increase the sales volume and reduce the stock. (ii) Yes, there are many ways to encourage his debtors to make the payment on time by way of cash discount and trade discount. (iii) If the debtors do not pay, the bad debts will be increased in the business.

James is a trader who sells washing machines on credit. But, he does not remember the due date to collect the money from his debtors. Some of his customers do not pay on time. His cash inflow is becoming worse. As a result, he could not pay his telephone bill and rent at the end of the accounting period. Hence, he showed only the amount paid as expense. He has many washing machines unsold at the year end. He is worried about the performance of his business. So, he is planning to appoint a manager to take care of his business. The new manager insists James to apply the accounting principle of prudence and matching and also to allow cash discount. Now, discuss on the following points:(i) Why does James sell on credit?(ii) Are there any ways to encourage his debtors to make the payment on time?(iii) What might happen if the debtors do not pay?

Answer»

(i) James sells goods on credit to increase the sales volume and reduce the stock.

(ii) Yes, there are many ways to encourage his debtors to make the payment on time by way of cash discount and trade discount.

(iii) If the debtors do not pay, the bad debts will be increased in the business.