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