A study on Account receivable and payable
PART B CHAPTER 7 GENERAL INTRODUCTION INTRODUCTION Accounts receivable represents money owed by entities to the firm on the sale of products or services on credit. In most business entities, accounts receivable is typically executed by generating an invoice and either mailing or electronically delivering it to the customer, who, in turn, must pay it within an established timeframe, called credit terms or payment terms.
The accounts receivable departments use the sales ledger, this is because a sales ledger normally records [2]: - The sales a business has made. - The amount of money received for goods or services. - The amount of money owed at the end of each month varies (debtors).
The accounts receivable team is in charge of receiving funds on behalf of a company and applying it towards their current pending balances. Collections and cashiering teams are part of the accounts receivable department. While the collection's department seeks the debtor, the cashiering team applies the monies received. Introduction Accounts receivable consists of monies due from customers as a result of an organization's normal business operations. The management of accounts receivable is an extremely important function since the collection of outstanding receivables represents the single most important source of cash for all organizations selling goods on open account. Because of the impact that accounts-receivable collections have on cash flow, it is important that responsibility for the day-to-day management of credit and collections activities be delegated to a single individual within the organization.
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A study on Account receivable and payable
Accounts Receivable as a Current Asset On the balance sheet, accounts receivable is reported as a current asset and is considered part of an organization's working capital. As a current asset, accounts receivable is expected to be turned into cash within the annual operating cycle of a business, which for most businesses is generally considered to be one year and corresponds to the twelve-month fiscal year used for financial reporting purposes. This, however, does not imply that it should take one year to collect individual receivable balances. In the case of a university press, accounts receivable represents a major component of current assets, working capital, and cash flow. The other major components of a university press's working capital are cash, short-term investments, and inventory. As a component of working capital, accounts receivable must be carefully managed in order to be turned into cash as quickly as possible and to avoid becoming uncollectible. Although accounts receivable is reported as a current asset, it must be carefully valuated and reported because until the receivable is collected, it cannot readily assist with the paying of current obligations.
Accounts Receivable and Collections Reports Because of the significance of accounts receivable it is important for management to receive periodic reports that both measure the effectiveness of collection activities and inform or alert management of problem accounts. Ideally, reports should be generated on a monthly basis, but depending on the size of the receivable balance and collections staff, the issuance of such reports may range from weekly to quarterly. This flow of information is necessary so that management and collections staff can determine whether current credit and collections policies and procedures are working, or whether any of the policies and procedures need to be changed to more effectively collect outstanding receivables. Additionally, the collections staff needs information so that collection activities can be prioritized, problem accounts isolated, and outstanding balances collected.
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A study on Account receivable and payable
Analysis of Accounts Receivable and Collections A number of methods are used to measure accounts-receivable balances and the effectiveness of collection policies and procedures. Some of the more frequently used methods to analyze accounts receivable and collections include: A/R at Year End as a Percentage of Total Sales. This ratio is computed by dividing the fiscal year-end A/R balance by fiscal year net sales. The AAUP Statistical Survey reported averages between 21.6%-23.0% for fiscal years 1992-1995. This ratio can also be computed at any time during the year; however, to get a meaningful ratio, the A/R balance must be divided by net sales for the most recent twelve months. Average Collection Period. This ratio is an indication of the average number of days required to convert receivables into cash. Ideally, the computation should use a monthly average of receivables and include only credit sales. A monthly average of receivables should be used in order to offset any fluctuations that may occur during the year. Additionally, only credit sales should be used in this computation since cash sales usually do not involve any credit risk. The computation of the average collection period is a twostep process. First divide total sales (preferably credit sales only) for the fiscal year by 365. This calculation yields the amount of credit sales per day. Then divide the year-end receivable balance (or average monthly receivable balance) by the credit sales per day. The result is the average collection period in days. The AAUP Statistical Survey reported average collection periods of 77-91 days for fiscal year 1995 and 80-95 days for fiscal year 1994. A/R Aging Schedule. This is a periodic report used to determine the priorities of collection activities. An aging schedule lists all customer accounts with outstanding balances as of the date of the aging schedule, one account per line. Across the line, the total amount due is broken down, or aged, by overdue categories. The overdue categories generally include current (not yet due), 1-30 days past due, 30-60 days past due, 60-90 days past due, and over 90 days past due. The aging categories may need to be adjusted to properly reflect an organization's terms of sales. A/R Aging by Customer Type or Payment Terms. This is a variation of the A/R Aging Schedule and can be used to more effectively target accounts that require the attention of
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A study on Account receivable and payable
the collections staff. A more focused schedule also allows comparisons to be drawn between similar accounts. Bad Debt Expense as Percentage of Total Sales. This ratio is computed by dividing year-end bad debt expense by net sales. The AAUP Statistical Survey reported averages of 0.4%-0.5% for fiscal years 1992-1995. Bad Debt Expense as Percentage of A/R Balance. This ratio is computed by dividing year-end bad debt expense by the year-end (or average) A/R balance. The AAUP Statistical Survey reported averages between 1.8% and 2.0% for the fiscal years 19921995. Credit Department Monthly Report. This is a summary report that helps management monitor the monthly accounts-receivable status and collections activities. A typical report would include current month and prior month balances for accounts receivable, total collections, and total net sales. Additionally, some ratios might be included, such as the average collections period. Bad debt comparison would include bad debt write-off for the current month, fiscal year to date, and last fiscal year to date. Finally, a summary of the number of accounts and balances in each aging category should be included. There is no universal, or standard, format for this type of report. For a credit department monthly report to be truly effective, it must be tailored to the needs and reporting capabilities of each individual press. The idea of this report is to provide management with a one-page summary of collection results each month.
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A study on Account receivable and payable
STATEMENT OF THE PROBLEM Understanding the user i.e., sales man wont understand the particulars only customer know the cheque number and invoices.
OBJECTIVE OF THE STUDY Following up of BR (bill receivables) in time as per customer pay in time. Providing detail information to the top level management. Making up of financial report as per the statutory and audit report.
SCOPE OF THE STUDY
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A study on Account receivable and payable
METHODOLOGY
1.
Tools for data collection:
For conducting the research effectively both primary data as well as secondary data are essential. The instruments used in the collection of data are most vital and important, as it is the most effective way of collecting relevant data. The data has collected through company records and annual reports, which is secondary in nature. a. Primary data; it has been collected by observations with the concerned Regional account department explain by the predefine process HCL management.
b. secondary data: the secondary data includes information obtain from the financial statements, annual reports of the company and Companys website(www.hclinfosystem.com) and financial
management books. c. Sample size: for the purpose of making the study more specific the analysis portion.
2. Method analysis: Data gathered has been tabulated with the help of tables and is represented with graphs to facilities interpretations. The analysis has been described on the following basis: Concept Analysis Interpretation
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A study on Account receivable and payable
LIMITATIONS OF THE STUDY
This study is limited only to the finances department. Time constraints while conducting the study This study is only based on the annual reports and company records.
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A study on Account receivable and payable
CHAPTER 8 DATA ANALYSIS AND INTERPRETATIONS
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