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1、 Accounts ReceivableAuthor: M. Elizabeth Haywood, Donald.Introduction Accounts receivable consists of monies due from customers as a result of an organizations normal business operations. The management of accounts receivable is an extremely important function since the collection of outstanding rec
2、eivables 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 de
3、legated to a single individual within the organization. Accounts Receivable as a Current Asset On the balance sheet, accounts receivable is reported as a current asset and is considered part of an organizations working capital. As a current asset, accounts receivable is expected to be turned into ca
4、sh 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 bala
5、nces. 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 presss working capital are cash, short-term investments, and inventory. As a component of working capital, accounts
6、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
7、 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 ac
8、counts. 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 wh
9、ether 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, prob
10、lem accounts isolated, and outstanding balances collected. 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 re
11、ceivable 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 percent and 23.0 percent for fiscal years 1992 through 1995. This r
12、atio 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. I
13、deally, 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 u
14、sually do not involve any credit risk. The computation of the average collection period is a two-step 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 (
15、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 to 91 days for fiscal year 1995 and 80 to 95 days for fiscal year 1994. A/R Aging Schedule. This is a periodi
16、c 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 to 30 days past due, 30 to 60 days past due, 60 to 90 days past due
