Sally, an accounting technician, works on the sal

Category: Accounting

Sally, an accounting technician, works on the sales ledger in Big Foods, a food wholesaler. One of its customers, Fare Foods, is owned by Sally’s brother.

Fare Foods has placed a large order and, like all other customers, receives a 2% prompt payment discount on invoices settled within 14 days.

The usual practice within the accounts department, which applies to all customers, is that the date recorded in the sales ledger is the date on which the payment is received in the accounts department (which must always be the same day that payment is received in the post or delivered to the reception desk). However, there are often one or two days between the cheques arriving at Big Foods and their eventual processing. In addition, cheques and cash received by Big Foods are banked only twice per week, on Wednesdays and Fridays.

The 14 day settlement date for the Fare Foods account fell on a Tuesday. It is now 9.15 on the following morning, and Sally has just received the Fare Foods cheque. She decides to record the receipt date in the sales ledger as Tuesday, and she duly processes Fare Foods’ prompt payment discount of 2%. She sees no need to seek authorisation for this, as Fare Foods had the potential to become a very valuable customer.

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