In: Accounting
Finance company
A finance company grants credits with various terms, partly on security and partly blank. Second or third mortgages are accepted as security. Collateral in the form of cars, boats and the like are accepted as well. Credits may be granted at a fixed interest percentage during the entire credit term, or at percentages which are adapted monthly to market developments.
Monthly installments are either fixed amounts or annuity determined (a fixed sum of installments and interest).
Furniture store
A furniture store sells against cash payment and on account. Sale on account is offered only to clients with a valid machine-readable charge card (badge). The store uses two systems for billing sales on account: monthly invoices or (separate) invoices for each transaction. Monthly invoices are due within one month of the billing date. The other invoices concern larger purchases and are payable in three monthly installments. The store uses a microcomputer for periodic billing and the accounts receivable administration.
1 . Essential functions of accounts receivable administration and related tasks are as follow :-
A . Day to day transactions = accounts receivable department has to perform all the day to day transactions relating to sales on accounts like verification, classification, posting etc.
B . Invoicing = accounts receivable administration is responsible for billing and invoicing the customer , in case of goods industry on sale of goods and in case of service industry on achieving milestones already set for various activities.
3 . Reconciliation = reconciling accounts receivable ledger on the basis of sales made on credit and amount collected from customer is also an important function functions of accounts receivable administration.
4 . Variance analysis = accounts receivable administration has to perform verification function also and has to locate if there is any discrepancies arising.
5 . Follow through = accounts receivable administration also have to send reminders to the customer to whom due date of collection has arrived and payment is due to them in the near future.
2. Following are the internal control measures related to tasks performed by accounts receivable administration :-
A . Automated bill generation machine is the need of the hour. It serves as a very important internal control measure mitigating the risk of any fraudulent generation of bill.
B . All the transactions relating to accounts receivable should be reconciled on a regular basis by the accounts receivable administration in order to avoid any risk of overlooking any debtor balance whose account has been suspended from a long time and due date for payment has been passed long back.
C . Any descrepancies in relation to accounts receivable should be displayed with highlighted fonts and warning signals, so that it can catch immediate attention of the responsible persons.
D . There should be an automatic system of sending reminder to those customers whose payable date is becoming due very soon. This will help in collecting payments from customers on a timely basis.
C. There are various ways of recording accounts receivable like
i Account receivable
To sales
(On making credit sales to customer)
ii . Cash
To accounts receivable
(On receiving payment from them)
iii . Notes receivable
To accounts receivable
(On receiving notes from debtors)
D. Credits are given only on tthe basis of collateral securities . Also credit are granted only at the interest rates Based on market developments . Monthly amounts are either fixed or annuity Based.
For furniture store
Sales on creditade only on the basis of valid machine readable charge card. Different systems of Billings are used like monthly invoices and separate invoices. Monthly are due on within a month of billing whole other is for large concerns and may involve huge amounts that's why three monthly installments are allowed .