MUHASEBE I - Deneme Sınavı - 1

Normally, companies collect account receivables in cash and remove it from the books simultaneously. However, in recent years as credit sales and receivables have grown considerably, some companies have started to sell their receivables to other companies in order to accelerate receipt of cash from receivables. The most practiced method to sell receivables is the sale to a factor, also called as factoring. Factoring arrangements vary extensively. However, factors (the buyer of the receivables) charge a fee or commission for their services. In today’s world, many businesses have reduced their investments in receivables by encouraging customers to pay via credit cards such as Visa or Master. The credit card companies pay these businesses and later bill the customers. The working of debit cards is slightly different than the working of credit cards. Using a debit card is similar to paying with cash, except that the customers will not have to carry cash with them. When debit card is swapped by retailer at the point of sale terminal (POS) or cash counter, the bank balance of the customer is automatically reduced and the amount is transferred to retailer’s account.

Receivables can be classified with respect to the nature of the transaction or with respect to their maturity structures.Trade receivables are account and notes receivables from sales transactions.Receivables are known as claims arising
from credit sales or loan transactions.

Trade discount is the reduction in the catalogue price or listed price of the goods. Trade discounts reduce the final sales price and are not affected by the date of payment. Hence, it is important to note that trade discounts are not recorded and therefore they are not reflected in the books of accounting for both buyer and seller. Only the price is recorded after a net of the trade discounts.

A company can sell it to a bank and in return can receive cash before the note’s actual maturity date. As banks purchase these notes from the companies at a “discount” from their maturity values, this process is also called discounting of notes receivable.”

However, it is more profitable to use 360 days instead of 365 because the note holder receives more interest.

Maker is the writer of a note, promises to pay.Payee is the receiver of a note, to get the payment

Th formula to find the solution is : DaystoCollect AccountsReceivable = 365days/
AccountsReceivablesTurnover

Credit card companies provide convenience to customers of buying without having to pay at the moment. To retailers, these credit card companies provide benefit of not checking each customer’s credit rating or credit history. Also, there is no need for the businesses to keep account receivables for longer period of time or to carry out collection from their customers. Credit card companies are not providing these benefits for free. They are charging a commission fee of 1% to 5% normally on a sale. This means the businesses are not getting 100% of the face value of their
sale.
.

As the example suggests, higher percentages are assigned to the older receivables because the lengthier a receivable is past due, there are more chances that it will be uncollectible.

You can use the formula Accounts receivables - (minus)Allowance for doubtful debts=Cash (Net) Realizable Value of the Accounts Receivable

Income statement of a firm is also affected by the uncollectible receivable amounts. The amount of expected uncollectible receivables is reported in the income statement as an expense so that profit should not be overstated. This expense is recorded in bad debts expense account and reported as bad debts expense in the income statement.