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)
|20th July||Balance||–||–||$1,200 Dr.|
|21st July||Bank A/c||$1,000||$200 Dr.|
|21st July||Discount Expense||$200||–|