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Chapter 3: 6DQ (page 219)

Explain why the bad debt percentage or any other similar credit-control percentage is not the ultimate measure of success in the management of accounts receivable. What is the key consideration?

Short Answer

Expert verified

The return generated from the investment in accounts receivables is considered to determine the success of accounts receivables management.

Step by step solution

01

Meaning of accounts receivables

The accounts receivables refer to any amount receivables by the organization when they sell its goods on a credit basis to its customers. These are current assets for the organization and are collected within a few months鈥� time.

02

The key consideration in accounts receivables management

The rate of return generated from the investment made in the accounts receivables is an important consideration when justifying the investment. The management does not consider the bad debt and credit control percentages when determining the return from accounts receivables investment.

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Most popular questions from this chapter

Talmud Book Company borrows $24,900 for 60 days at 12 percent interest. What is the dollar cost of the loan?

Dollar cost of loan = Amount borrowed X Interest rate X Days loan is outstanding/ Days in a year (360)

Antonio Banderos & Scarves make headwear that is very popular in the fall-winter season. Units sold are anticipated as follows:

October

1,250

November

2,250

December

4,500

January

3,500

Total units

11,500

If seasonal production is used, it is assumed that inventory will directly match sales for each month and there will be no inventory build-up.

However, Antonio decides to go with level production to avoid being out of merchandise. He will produce the 11,500 items over four months at a level of 2,875 per month.

a. What is the ending inventory at the end of each month? Compare the units sales to the units produced and keep a running total.

b. If the inventory costs $8 per unit and will be financed at the bank at a cost of 12 percent, what is the monthly financing cost and the total for the four months? (Use 1 percent or the monthly rate.)

If a firm uses a just-in-time inventory system, what effect is that likely to have on the number and location of suppliers?

Route Canal Shipping Company has the following schedule for aging of accounts receivable:

a. Fill in column (4) for each month.

Age of receivables April 30 20X1

1

2

3

4

Month of sales

Age of accounts

Amounts

Percent of amount due

April

0-30

\(131,250

____

March

31-60

\)93,750

____

February

61-90

\(112,500

____

January

91-120

\)37,500

____

Total receivables

$375,000

100%

What are three theories for describing the shape of the term structure of interest rates (the yield curve)? Briefly describe each theory.
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