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Homework answers / question archive / One of Natalie friends, Curtis Lesperance, runs a coffee shop where he sells specialty coffees and prepares and sells muffins and cookies
One of Natalie friends, Curtis Lesperance, runs a coffee shop where he sells specialty coffees and prepares and sells muffins and cookies. He is eager to buy one of Natalie's fine European mixers, which would enable him to make larger batches of muffins and cookies. However, Curtis cannot afford to pay for the mixer for at least 30 days. He asks Natalie if she would be willing to sell him the mixer on credit.
Natalie comes to you for advice. She asks you to address the questions below.
The following transactions occurred in June through August 2020.
June 1: After much thought, Natalie sells a mixer to Curtis on credit, terms n/30, for $1,150 (cost of mixer $620).
June 30: Curtis calls Natalie. He is unable to pay the amount outstanding for another month, so he signs a 1-month, 8.35% note receivable.
July 31: Curtis calls Natalie. He indicates that he is unable to pay today but hopes to have a check for her at the end of the week. Natalie prepares the journal entry to record the dishonor of the note. She assumes she will be paid within a week.
Aug. 7: Natalie receives a check from Curtis in payment of his balance owed.
Instructions:
Natalie should calculate for the credit worthiness from the financial statements of Curtis which can be done through, Upcoming cash flows estimations, Credibility analysis etc.
1) Yes, Curtis can be offered a discount in replacement of extending credit to get prompt payments.
2) advantages and disadvantages of letting customers pay by credit card:
Advantages:
Disadvantage:
Explanation
Credit risk: Defines the level of liability that your company can tolerate. Will you have the funding to cover the transaction? You'll need to consider the possibility that you won't get paid at all as part of this assessment.
Pay terms: Decide how much pay you are able to lend and about how long you can expect to wait about payment. The words can range from 10-day intervals to 90 days or more. Requiring a certain percentage down will chance to a zero. Often companies perform so on the first few buying orders before providing 100 percent financing.
Credit rating: Can you lend credit to customers and companies alike? If so, how do you assess their creditworthiness? For consumers, a simple credit application with references may be required. Or you may move a step ahead and run a background review with a customer credit service. You can need to submit a credit application for business customers and verify with a business company.
Payment policy: Create a payment policy that includes the whole cycle of providing credit to consumers, from filing applications to collections that were past due. The further information you carried out in advance, the more the manager, selling managers and marketing team would be prepared to support the project.
Journal Entry:
