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4. Defining Accounts Receivable Setting a Credit Policy Terms of Trade Collecting Receivables Accounts Receivable Working Capital Management > Accounts Receivable Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance?campaign_content=book_192_section_128&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=di rect&utm_source=boundless

5. In most businesses, accounts receivable is executed by generating an invoice and either mailing or electronically delivering it to the customer, who, in turn, must pay it within an established timeframe. Account receivables are classified as current assets assuming that they are due within one year. Revenue has a big impact on bottom-line profitability, so managers may be tempted to "manage" revenue recognition. Defining Accounts Receivable Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/working-capital-management-18/accounts-receivable-128/defining-accounts- receivable-519- 7071?campaign_content=book_192_section_128&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless Accrual Recognition View on Boundless.com Working Capital Management > Accounts Receivable

6. Management must decide on credit standards, which involves decisions on how much credit risk to assume. Another important factor in determining credit standards involves a company evaluating the credit worthiness of an individual or business. After establishing credit standards, the firm must decide on the length of the period before payment must be made and whether or not they will offer a discount for early payments. The last step is to establish a collection policy. Setting a Credit Policy Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/working-capital-management-18/accounts-receivable-128/setting-a-credit- policy-520- 3829?campaign_content=book_192_section_128&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless Credit Score Factors View on Boundless.com Working Capital Management > Accounts Receivable

7. Credit terms are often quoted "net X" with X being a certain number of days. An example of a common payment term is Net 30, which means that payment is due at the end of 30 days from the date the invoice is issued. The debtor is free to pay before the due date, and many businesses can offer a discount for early payment. A discount stated as 2/10, net 30 means that the buying firm will receive a two percent discount if it pays by the tenth day, or else they will pay the full amount in 30 days. Terms of Trade Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/working-capital-management-18/accounts-receivable-128/terms-of-trade-521- 7277?campaign_content=book_192_section_128&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless Markup View on Boundless.com Working Capital Management > Accounts Receivable

8. Collecting on accounts receivable is the final step in the credit extension process, and arguably the most difficult. Accounts receivable days and an aging schedule are tools used to monitor accounts receivable. The accounts receivable days is the average number of days that it takes a firm to collect on its sales. The aging schedule categorizes accounts by the number of days they have been on the books. A company may protect against bad-debts losses by purchasing trade credit insurance. Collecting Receivables Free to share, print, make copies and changes. Get yours at www.boundless.com www.boundless.com/finance/textbooks/boundless-finance-textbook/working-capital-management-18/accounts-receivable-128/collecting- receivables-522- 7278?campaign_content=book_192_section_128&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boun dless Collection Letter View on Boundless.com Working Capital Management > Accounts Receivable

9. Free to share, print, make copies and changes. Get yours at www.boundless.com Appendix

10. Key terms accrual accounting A method of accounting in which funds are recorded when they are earned and deductions are claimed when expenses are incurred. bad-debt losses losses resulting from an uncollectible debt. collateral A security or guarantee (usually an asset) pledged for the repayment of a loan if one cannot procure enough funds to repay. (Originally supplied as "accompanying" security. ) collection policy the set of rules for receiving accounts payable or debt credit period the amount of time required to receive payment for debt extended creditors a person or institution to whom money is owed. franchising The establishment, granting, or use of a franchise. subsidiary A company owned by the parent company or holding company Free to share, print, make copies and changes. Get yours at www.boundless.com Working Capital Management

11. Collection Letter This is an example of a letter from a collection agency offering to settle a debt. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr. "Debt Settlement Offer | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/sercasey/512307249/ View on Boundless.comCC BYhttp://www.flickr.com/photos/sercasey/512307249/View on Boundless.com Working Capital Management

12. Credit Score Factors This chart depicts the factors that go into an individual's credit score. Free to share, print, make copies and changes. Get yours at www.boundless.com Wikimedia. "Credit-score-chart." CC BY http://commons.wikimedia.org/wiki/File%253ACredit-score-chart.svg View on Boundless.comCC BYhttp://commons.wikimedia.org/wiki/File%253ACredit-score-chart.svgView on Boundless.com Working Capital Management

13. Accrual Recognition This chart lays out methods for accruing revenue and expenses in accounting. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr. "y2cary3n6mng-76r9m3-accruals | Flickr - Photo Sharing!." CC BY-SA http://www.flickr.com/photos/sampjb/7690680336/in/photostream View on Boundless.comCC BY-SAhttp://www.flickr.com/photos/sampjb/7690680336/in/photostreamView on Boundless.com Working Capital Management

14. Markup This equation shows the finding of selling price for a vendor by adding its markup to its cost. Free to share, print, make copies and changes. Get yours at www.boundless.com Flickr. "y2cary3n6mng-fwrdxb-markup-formula | Flickr - Photo Sharing!." CC BY-SA http://www.flickr.com/photos/sampjb/7690683622/in/photostream View on Boundless.comCC BY-SAhttp://www.flickr.com/photos/sampjb/7690683622/in/photostreamView on Boundless.com Working Capital Management

15. Free to share, print, make copies and changes. Get yours at www.boundless.com Working Capital Management If a company has yet to receive payment for its goods, which of the following describes a situation when it can recognize revenue from the sale? A) Once the company has sustained a portion of the costs associated with providing the good or service. B) Once the company has performed a portion of the services to be provided. C) All of these answers. D) When the goods have been delivered and the title has been transferred to the buyer.

16. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Working Capital Management If a company has yet to receive payment for its goods, which of the following describes a situation when it can recognize revenue from the sale? A) Once the company has sustained a portion of the costs associated with providing the good or service. B) Once the company has performed a portion of the services to be provided. C) All of these answers. D) When the goods have been delivered and the title has been transferred to the buyer.

17. Free to share, print, make copies and changes. Get yours at www.boundless.com Working Capital Management Which of the following correctly defines one of the "Five C's of Credit?" A) Capital: Does the borrower have enough cash flow to make its payments? B) Capacity: Does the borrower have sufficient assets to secure the loan? C) Character: Is the borrower trustworthy with a history of meeting its debt obligations? D) All of these answers.

18. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Working Capital Management Which of the following correctly defines one of the "Five C's of Credit?" A) Capital: Does the borrower have enough cash flow to make its payments? B) Capacity: Does the borrower have sufficient assets to secure the loan? C) Character: Is the borrower trustworthy with a history of meeting its debt obligations? D) All of these answers.

19. Free to share, print, make copies and changes. Get yours at www.boundless.com Working Capital Management A customer has 45 days from the date of invoice to pay a bill in full, but if he pays within 15 days of the invoice, he gets a 10% discount. Which of the following describes these terms of trade? A) 15/10, net 45. B) 10/45, net 15. C) 15/45, net 10. D) 10/15, net 45.

20. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Working Capital Management A customer has 45 days from the date of invoice to pay a bill in full, but if he pays within 15 days of the invoice, he gets a 10% discount. Which of the following describes these terms of trade? A) 15/10, net 45. B) 10/45, net 15. C) 15/45, net 10. D) 10/15, net 45.

21. Free to share, print, make copies and changes. Get yours at www.boundless.com Working Capital Management Which of the following correctly describes a method companies can use to analyze their collections? A) All of these answers. B) The account receivable days is the average number of days it takes a firm to collect on its sales. C) An aging schedule categorizes accounts by the number of days they have been on the books. D) The receivable turnover ratio measures the number of times, on average, receivables are collected.

22. Free to share, print, make copies and changes. Get yours at www.boundless.comwww.boundless.com Boundless - LO. "Boundless." CC BY-SA 3.0 http://www.boundless.com/CC BY-SA 3.0http://www.boundless.com/ Working Capital Management Which of the following correctly describes a method companies can use to analyze their collections? A) All of these answers. B) The account receivable days is the average number of days it takes a firm to collect on its sales. C) An aging schedule categorizes accounts by the number of days they have been on the books. D) The receivable turnover ratio measures the number of times, on average, receivables are collected.

23. Attribution Wikipedia. "Discounts and allowances." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Discounts_and_allowancesCC BY-SA 3.0http://en.wikipedia.org/wiki/Discounts_and_allowances Wikipedia. "Credit worthiness." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Credit_worthinessCC BY-SA 3.0http://en.wikipedia.org/wiki/Credit_worthiness Wikispaces. "SU3FINANCE - Chapter 18 - Working Capital Management." CC BY-SA http://su3finance.wikispaces.com/Chapter+18+-+Working+Capital+ManagementCC BY-SA http://su3finance.wikispaces.com/Chapter+18+-+Working+Capital+Management Wikipedia. "Debtor collection period." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Debtor_collection_periodCC BY-SA 3.0http://en.wikipedia.org/wiki/Debtor_collection_period Boundless Learning. "Boundless." CC BY-SA 3.0 http://www.boundless.com//finance/definition/collection-policyCC BY-SA 3.0http://www.boundless.com//finance/definition/collection-policy Wiktionary. "collateral." CC BY-SA 3.0 http://en.wiktionary.org/wiki/collateralCC BY-SA 3.0http://en.wiktionary.org/wiki/collateral Boundless Learning. "Boundless." CC BY-SA 3.0 http://www.boundless.com//finance/definition/bad-debt-lossesCC BY-SA 3.0http://www.boundless.com//finance/definition/bad-debt-losses Wikipedia. "Accounts receivable." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Accounts_receivableCC BY-SA 3.0http://en.wikipedia.org/wiki/Accounts_receivable Wikibooks. "ERP Internals/Modules/Accounts Receivable." CC BY-SA 3.0 http://en.wikibooks.org/wiki/ERP_Internals/Modules/Accounts_ReceivableCC BY-SA 3.0 http://en.wikibooks.org/wiki/ERP_Internals/Modules/Accounts_Receivable Boundless Learning. "Boundless." CC BY-SA 3.0 http://www.boundless.com//accounting/definition/accrual-accountingCC BY-SA 3.0http://www.boundless.com//accounting/definition/accrual-accounting Wikipedia. "Accounts receivable." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Accounts_receivableCC BY-SA 3.0http://en.wikipedia.org/wiki/Accounts_receivable Wikipedia. "Net D." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Net_DCC BY-SA 3.0http://en.wikipedia.org/wiki/Net_D Wikipedia. "Trade credit." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Trade_creditCC BY-SA 3.0http://en.wikipedia.org/wiki/Trade_credit Wikispaces. "SU3FINANCE - Chapter 18 - Working Capital Management." CC BY-SA http://su3finance.wikispaces.com/Chapter+18+-+Working+Capital+ManagementCC BY-SA http://su3finance.wikispaces.com/Chapter+18+-+Working+Capital+Management Wiktionary. "franchising." CC BY-SA 3.0 http://en.wiktionary.org/wiki/franchisingCC BY-SA 3.0http://en.wiktionary.org/wiki/franchising Wikispaces. "SU3FINANCE - Chapter 18 - Working Capital Management." CC BY-SA http://su3finance.wikispaces.com/Chapter+18+-+Working+Capital+ManagementCC BY-SA http://su3finance.wikispaces.com/Chapter+18+-+Working+Capital+Management Wikipedia. "Trade credit insurance." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Trade_credit_insuranceCC BY-SA 3.0http://en.wikipedia.org/wiki/Trade_credit_insurance Free to share, print, make copies and changes. Get yours at www.boundless.com Working Capital Management

24. Wikipedia. "Collection agency." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Collection_agencyCC BY-SA 3.0http://en.wikipedia.org/wiki/Collection_agency Wikipedia. "Receivables turnover ratio." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Receivables_turnover_ratioCC BY-SA 3.0http://en.wikipedia.org/wiki/Receivables_turnover_ratio Wiktionary. "subsidiary." CC BY-SA 3.0 http://en.wiktionary.org/wiki/subsidiaryCC BY-SA 3.0http://en.wiktionary.org/wiki/subsidiary Wikipedia. "creditors." CC BY-SA 3.0 http://en.wikipedia.org/wiki/creditorsCC BY-SA 3.0http://en.wikipedia.org/wiki/creditors Free to share, print, make copies and changes. Get yours at www.boundless.com Working Capital Management