I need your advise. Business sells items. 25% customers pay next month. For Oct. cash collected was $21000 and $6500(accounts receivable) from Sept. Total-27500. What is revenue in this case?

Thank you,

Luiza

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If you are on cash basis accounting, this is simply the $27,500 received in the month.

However, I expect you are on accrual basis, in which case the sales made in the month are what you want to count instead of the cash received. Under accrual, you sold $21,000 that you already collected on, and another 25% that will be collected the following month. Therefore, the $21,000 is 75% of revenue for the month. Now it becomes an algebra problem:

$21,000/.75 = $28,000 

The $6,500 of accounts receivable is the 25% of the prior month's revenue, so it doesn't count for this month.

Good studying! 

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January marks the end of the old year and the start of the new, an chance to review what's happened in the past and an opportunity to learn from it for the future. In accounting, this is the essence of the granddaddy of financial statements, the balance sheet.

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Thanks for your question, Charles.

This a combination of Simple Interest and Rule of 78s. If you haven't already, you may want to review our tutorial on interest rates.

Simple interest is calculated on the original amount borrowed, and is therefore better suited for short-term borrowing and single payment loans than for long-term installment loans.

Simple Interest = Principle x Rate x Time

The Rule of 78 is a method of allocating interest charges for the life of a loan to the periods within the loan. Under this method, interest is calculated for the life of the loan, and allocated to each month by proportion using reverse sum of the digits methodology. You start by adding up the numbers of months for the note. In your example of an 8 month loan, counting month 1, plus month 2, and so forth through month 8 is:

1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 = 36

With 12 months this totals 78, and hence the name, the Rule of 78s.

The interest total for the loan life (Interest = Rate x Time x Principle) is divided by the sum of the digits (78 in this example) and applied in reverse proportion across the life of the loan. Thus, 8/36 of the interest applies to the first month, 7/36 to the second month, and so forth down to 1/36th at the end of the 8th month.

To solve this problem you need to calculate the full amount of interest, then allocate it to the months, and add up the parts saved by paying off early.

We are told she is going to repay the $500 loan in 8 installments of $70:

$560 total - $500 principal = $60 interest

(That is 12% and it was NOT an annual rate! Wow!) So the $60 interest is what she is trying to save part of by paying in full with the 4th payment. The last four months count as 1/36 + 2/36 + 3/36 + 4/36 = 10/36 of the interest, and 10/36 x $60 = $16.67 of interest saved.

That is not very much savings from prepaying the loan. Hence - try to avoid rule of 78s loans!

I hope this helps. Let us know if you need anything else.

Thank you for your interest in College-Cram.com and thanks for your question.

Your question about debits and credits is not unusual. A lot of people are confused by these terms. Part of this comes from the terms being used so widely but from different perspectives and for different purposes. As an accounting student, you don't have to worry about what the banker meant by "crediting your account" which makes sense from the bankers accounting system but not yours. What you need to remember is the accounting secret: Debit and Credit only refers to which side of a two column ledger the number appears on - left or right.

There was a highly respected accountant who came into his office every morning and after he got his coffee, sharpened his pencil, and got files arranged to use them, he unlocked and opened the center drawer of his desk, peered inside for just a moment, and then locked it back and began his work for the day. He did this for forty years. Same thing, every morning. People observed him doing this over the years, but no one ever asked him about it. There was quite a bit of speculation, but since he always kept the drawer locked, no one had been able to sneak a peek. At his retirement party, one of his friends couldn't resist asking him just what that daily ritual was about. He went to his desk, unlocked the center drawer, and removed a worn, faded, index card. It said "Debits on the left. Credits on the right."

That is all a debit or a credit amounts to. Debits go on the left and credits go on the right. You are right that these affect different accounts differently.

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