How important does accounts receivable useful for small business and why?

Correct Answer: An accounts receivable aging is a report that lists unpaid customer invoices and unused credit memos by date ranges A typical aging report lists invoices in 30-day "buckets," where the left-most column contains all invoices that are 30 days old or less, the next column contains invoices that are 31-60 days old, the next column contains invoices that are 61-90 days old, and the final column contains all older invoices The report is sorted by customer name, with all invoices for each customer itemized directly below the customer name, usually sorted by either invoice number or invoice date A sample report follows, though without the individual invoice detail that is usually found in such a report: Customer Name Total A/R 0-30 Days 31-60 Days 61-90 Days 90+ Days Abercrombie $15,000 $10,000 $5,000 Bufford Inc 29,000 20,000 9,000 Chesterton Co 83,000 47,000 21,000 12,000 3,000 Denver Brothers 8,000 8,000 Totals $135,000 $57,000 $46,000 $21,000 $11,000 If the report is generated by an accounting software system (which is usually the case), then you can usually reconfigure the report for different date ranges For example, if your payment terms are net 15 days, then the date range in the left-most column should only be for the first 15 days This drops 16-day old invoices into the second column, which highlights that they are now overdue for payment The report primarily contains invoices, but it may also contain credit memos that have not been used by customers, or which have not yet been matched against an unpaid invoice The aging report is the primary tool used by collections personnel to determine which invoices are overdue for payment, and which therefore require them to contact customers Given its use as a collection tool, the report may be configured to also contain contact information for each customer The aging report is also used as a tool for estimating potential bad debts, which are then used to revise the allowance for doubtful accounts The usual method for doing so is to derive the historical percentage of invoice dollar amounts in each date range that usually become a bad debt, and apply these percentages to the column totals in the most recent aging report An additional use of the aging report is by the credit department, which can view the current payment status of any outstanding invoices to see if customer credit limits should be changed This is not an ideal use of the report, since the credit department should also review invoices that have already been paid in the recent past Nonetheless, the report does give a good indication of the near-term financial situation of customers

Correct Answer: A bad debt provision is a reserve that you build up over time against the future recognition of specific accounts receivable as being uncollectible Thus, if a company has issued invoices for a total of $1 million to its customers in a given month, and has a historical experience of 5% bad debts on its billings, it would be justified in creating a bad debt provision for $50,000 (which is 5% of $1 million) It is impossible to know the exact amount of bad debts that will occur at some point in the future from the current account receivable, so it is entirely normal to continually readjust the bad debt provision, as you gain a greater understanding of how collectible the accounts receivable really are These adjustments may lead to future increases or decreases in the bad debt expense Since these adjustments can be viewed as a means of manipulating a company's reported profits, you should fully document your reasons for making the adjustments You would create a bad debt provision with a debit to the bad debt expense account, and a credit to the bad debt provision account The bad debt provision account is an accounts receivable contra account, which means that it contains a balance that is the reverse of the normal debit balance found in the associated accounts receivable account Later, when a specific invoice is found to be uncollectible, you create a credit memo in the accounting software for the amount of the invoice that is uncollectible The credit memo reduces the bad debt provision account with a debit, and reduces the accounts receivable account with a credit Thus, the initial creation of the bad debt provision creates an expense, while the later reduction of the bad debt provision against the accounts receivable balance is merely a reduction in offsetting accounts on the balance sheet, with no further impact on the income statement The reason for a bad debt provision is that, under the matching principle, you should match revenues with related expenses in the same accounting period Doing so shows the full effect of a billed sale transaction in a single accounting period If you were to not use a bad debt provision, and instead used the direct write off method to only charge bad debts to expense when you were certain that a specific invoice was not collectible, then the charge to expense might be many months later than the initial revenue recognition associated with the billing Thus, under the direct write off method, profits will be too high in the period of the billing to the customer, and too low in the later period when you finally charge some portion or all of an invoice to the bad debt expense

Correct Answer: Trade receivables are amounts billed by a business to its customers when it delivers goods or services to them in the ordinary course of business These billings are typically documented on formal invoices, which are summarized in an accounts receivable aging report In the general ledger, trade receivables are recorded in a separate accounts receivable account, and are classified as current assets on the balance sheet if you expect to receive payment from customers within one year To record a trade receivable, the accounting software creates a debit to the accounts receivable account and a credit to the sales account when you complete an invoice When the customer eventually pays the invoice, the accounting software records the cash receipt transaction with a debit to the cash account and a credit to the accounts receivable account Trade receivables vary from non trade receivables in that non trade receivables are for amounts owed to the company that fall outside of the normal course of business, such as employee advances or insurance reimbursements Also, most or all of the transactions passing through the main accounts receivable account are generated by the accounting system, as you create customer invoices and credit memos, whereas the transactions recording non trade receivables nearly always involve journal entries

Correct Answer: After posting the all accounts in the Ledger a statement is prepared to showing debit and credit balancesDebit balances must be tally with the Credit side balance is called trial balance

Correct Answer: Finance:It is the branch of economics that studies the management of money and other assetsIn simpler terms it can be defined as the commercial activity of providing funds and capitalIt addresses questions like -- what funds are required by the org & How they can be raised & How they have to be allocated etc Accounts: It is the occupation of maintaining and auditing records and preparing financial reports for a business Accounts provides quantitative information about finances It addresses issues like what amount of funds have been allocated to various activities, how the book-keeping is being done etc Both functions are distinct but complimentary to each other Finance and accounts are highly specilized and distinct areas and hence most organizations have seperate sections of finance and accounts

Correct Answer: added to the bank balance

Explanation:

A deposit in transit is cash (currency, coins, checks, electronic transfers) that a company has received and is rightfully reported as Cash on its balance sheet, but does not appear on the bank statement until a later date.

Correct Answer: The persons whose primary investing objective is to preserve capital while generating a tax-free income stream, then municipal bonds are worth considering Municipal bonds (munis) are debt obligations issued by government entities When you buy a municipal bond, you are loaning money to the issuer in exchange for a set number of interest payments over a predetermined period At the end of that period, the bond reaches its maturity date, and the full amount of your original investment is returned to you Types of Municipal Bonds : Municipal bonds come in the following two varieties: 1 General obligation bonds (GO) 2 Revenue bonds General obligation bonds, issued to raise immediate capital to cover expenses, are supported by the taxing power of the issuer Revenue bonds, which are issued to fund infrastructure projects, are supported by the income generated by those projects Both types of bonds are tax exempt and particularly attractive to risk-averse investors due to the high likelihood that the issuers will repay their debts

Correct Answer: Enterprise software is expressly built to allow companies to mimic their unique business practices.

Explanation:

Enterprise systems (ES) are large-scale application software packages that support business processes, information flows, reporting, and data analytics in complex organizations.

Correct Answer: Accounts-receivable financing is a type of asset-financing arrangement in which a company uses its receivables ? outstanding invoices or money owed by customers ? to receive financing when a business sells its AR (accounts receivable) to a factoring company and receives short-term business funding in return, this is what called as Accounts Receivable Financing How it works :: Business-to-business sales are often offered with payment terms of 30, 60 or 90 days The buyer receives the product, but doesn't submit payment until the mutually agreed-upon date The seller records the sale as revenues and increases the accounts receivable by the amount of the sale When the payment arrives, the seller decreases the accounts receivable and increases cash Accounts receivable financing allows the seller to get the cash immediately by selling the receivable to a third party This is called factoring

Correct Answer: Allocation

Explanation:

Depreciation is a process of cost allocation, not valuation. In accounting, the term depreciation refers to the allocation of cost of a tangible asset to expense to the periods in which the asset is expected to be used to obtain the economic benefit.

 

In brief, Depreciation is fall in the value of assets due to wear and tear over a period of time, it is a loss.