What is trade credit?

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Solution

Trade credit refers to an arrangement where customers are allowed to purchase goods without the requirement of paying cash at that time and the option of payment after a fixed period of time.

Also read:

MCQ on Internal Trade

History of Trade and Commerce in India

Trade Deficit

MCQs on International Trade and Finance

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Q. From the information given below, calculate Trade Receivables Turnover Ratio:
Credit Revenue from Operations, i.e., Credit Sales ₹8,00,000; Opening Trade Receivables ₹1,20,000; and Closing Trade Receivables ₹2,00,000.
State giving reason, which of the following would increase, decrease or not change Trade Receivables Turnover Ratio:
(i) Collection from Trade Receivables ₹40,000.
(ii) Credit Revenue from Operations, i.e., Credit Sales ₹80,000.
(iii) Sales Return ₹20,000.
(iv) Credit Purchase ₹1,60,000.

Q. From the following particulars, determine Trade Receivables Turnover Ratio:

	₹
Revenue from Operations (Net Sales)	10,00,000
Credit Revenue from Operations (Credit Sales)	8,00,000
Trade Receivables	1,00,000

Closing Trade Receivables ₹ 4,00,000; Cash Sales being 25% of Credit Sales; Excess of Closing Trade Receivables over Opening Trade Receivables ₹ 2,00,000; Revenue from Operations, i.e., Revenue from Operations, i.e., Net Sales ₹ 15,00,000. Calculate Trade Receivables Turnover Ratio

[Hint: 1. Net Credit Sales = Total Sales − Cash Sales

2. Opening Trade Receivables = Closing Trade Receivables − Excess of Closing Trade Receivables over Opening Trade Receivables.]

Q. If value of credit revenue from operations is Rs.6,00,000 and Average Trade Receivables are Rs. 2,00,000. What will be Trade Receivables Turnover Ratio?

Q. Credit purchase of trading goods is initially recorded in________.

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