Download - Financial Management in Education
FINANCIAL
MANAGEMENT IN EDUCATION
By:
Samson C. Quanico
(M.A.Ed. –Educational Management
Pasig Catholic School
School of Graduate Studies
MANAGEMENT OF
ACCOUNTS
RECEIVABLE
BY:SAMSON C. QUANICO
M.A.Ed, Educational ManagementPasig Catholic School
School of Graduate Studies
When a business extends credit to its
customers, it records a revenue transaction at
the time it provides its customer with goods or
services. The transaction results in a revenue
account increase and an increase in an asset
account. Since no cash is received, the asset
account that is increased is Accounts
Receivable.
What is an account receivable?
Example. When SCQ Ventures made its Decemberdelivery the Pasig Grower’s Co-op did not pay thebalance owed until January. When the delivery wascompleted the Co-op had an obligation to pay SCQVentures for its services. SCQ Ventures completed the$50,000 delivery on December 20. Recall that the Co-op had already paid $5,000 on the delivery, so onDecember 20 the following journal entry would bemade:
Primary reasons for increases:
1. Increasing sales
2. Inflation
3. Extended credit terms during
recessions.
A. Accounts receivable as a percentage
of total assets almost doubled for the
typical U.S. corporation
1. Investment in accounts receivable
should generate a return equal
to or in excess of the return
available on alternative
investments.
A. Account receivables are
an investment
Three primary variables for
credit policy administration
1. Credit standards
a. The firm screens credit applicants on the basis of prior \record of payment, financial stability, current net worth, and other factors.
b. 5 C’s of Credit: character, capital, capacity, conditions, collateral.C. Dun & Bradstreet Information Services (DBIS)
1. Business Information Report2. Commercial Credit Scoring Report3. Industry Credit Score Report
d. D-U-N-S Data Universal Number System is a unique nine digit code used globally and accepted by the United National and other international agencies as global business identification
2. Terms of trade
Terms of trade is an index of the price of a country's exports in terms of its imports. The terms of trade are said to improve if that index rises. (Obstfeld and Rogoff, p 25)
Not the contractual conditions of sale between a buyer and a seller, but the quantity of foreign goods and services (imports) that a country can purchase from the proceeds of the sale of its goods and services (exports) of a given quantity. It is a measure of a country's trading and is expressed as the ratio of an index of export prices to an index of import prices. Terms of trade of a country improve when the prices of its exports rise in comparison with the prices of its imports, vice versa.
3.Collection policy
Procedures a firm follows in attempting to collect accounts receivables.
Collection Policy
The steps that a company follows in ensuring timely payment of its accounts receivable. Collection policies vary by company. An example of the steps a company can takes involves a friendly phone call to make sure payment is made on time, followed by a firm phone call when a payment is late, followed by a threatening letter, and finally turning the client over to a collection agency. Companies may deviate from their collection policy for long-standing or otherwise trusted customer.
Measures to asses collection
a.Average collection periodb.Ratio of bad debts to salesc.Aging of accounts receivable
a. Average Collection period
The approximate amount of time that it takes for a business to receive payments owed, in terms of receivables, from its customers and clients
b. Debt Ratio
A financial ratio that measures the extent of a company’s or consumer’s leverage. The debt ratio is defined as the ratio of total debt to total assets, expressed in percentage, and can be interpreted as the proportion of a company’s assets that are financed by debt.
The higher this ratio, the more leveraged the company and the greater its financial risk. In the consumer lending and mortgage businesses, debt ratio is defined as the ratio of total debt service obligations to gross annual income.
A periodic report showing all outstandingreceivable balances, broken down by customer and month due.
c. Aging of accounts receivable
The process of investigating a company's accounts receivable according to how long individual invoices have been outstanding. Analysts can use aging to identify bad debt and/or problems with the company's credit policy.
Inventory ManagementTwo basic costs associated with inventory
The first step toward achieving
minimum inventory costs is determine of the
optimal order quantity. This quantity may be
derived by use of the economic order
quantity formula
Where:
S= sales
O= the cost to process an order
C annual carrying costs per unit in dollars
Minimum total inventory costs will result if the assumptions of the model are applicable and the firm’s order size equals the economic ordering quantity.
Just-in-Time Inventory Management (JIT)
End
References:http://financial-dictionary.thefreedictionary.com/Collection+policy
Read more: http://www.businessdictionary.com/definition/terms-of-trade.html#ixzz2yUoc1HXI