Full & Final Settlement Quiz

 AccountingQuizzes – Debtors & Creditors Account

Debtors & Creditors – Full & Final Settlement of Accounts Quiz

Your Business customer ABC Traders Account balance showed $1200 (Dr.) on 20th July 200A.

They paid $1000 cheque as full and final settlement of all their dues on 21st July 200A.

In this context,

a ) ABC Trader received $200 discount

b ) ABC Traders Account Balance becomes $200 Dr.

c ) ABC Traders Account Balance becomes $200 Cr.

d ) Your Business will return $200 to ABC Traders


 

Full & Final Settlement Quiz Explained

ABC Traders is your Business Customer or you can say they are your TRADE DEBTORS.

ABC Traders Owed you $1,200 on 20th July 200A. When someone owes you, it means they have to pay you that amount. The Debit balance is making it clear that ABC Traders owed you $1,200 on 20th July 200A.

On 21st July, your business & ABC Traders might have reached an agreement to settle the balance amount with a $1,000 cheque.

That means a full & final account settlement agreement has reached between the two parties, that is your Firm & ABC Traders and since ABC Traders will clear their $1,200 liability by paying you $1,000 cheque, that definitely means ABC traders have received a discount of $200 from you.

In other words, your business has allowed a discount of $200 to ABC Traders.

This is how ABC Traders Ledger account will look like (simplified format for understanding purpose only)

ABC Traders
Date Particulars Dr. Cr. Balance
200A
20th July Balance $1,200 Dr.
21st July Bank A/c $1,000 $200 Dr.
21st July Discount Expense $200

 

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